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Reliance Power (RPOL.BO)
Sell Equity Research
Butibori visit: On track, but stock already implies perfect execution
What's changed
We visited Reliance Power’s (RPWR) 2x300 MW Butibori project located
near Nagpur. The key takeaways of our site visit were: 1) 42% of overall
project is complete and the hydro test for Unit 1 is scheduled in June 2011.
Butibori project team expects COD to be around 1Q2012, which is in line
with our expectations; 2) 70% of the material for Unit 1 and 2 is at the site
and work on railway sliding and transmission infrastructure is in progress.
Implications
Our site visit and recent newsflow on Sasan and Samalkot projects indicate
that execution is underway and now there is higher visibility on timelines for
commissioning of these projects. We, however, believe that RPWR valuations
are not only implying perfect execution of its 20GW of capacity in the pipeline,
but also reflecting an option value of RPWR’s ability to sell about 18 mn
tons of excess coal from mines allocated for their UMPP projects.
While existing policy allows RPWR to transfer excess coal to nearest Coal India
Limited (CIL) subsidiaries at government notified prices (which is almost at
cost, in our view), we think RPWR’s stock price is implying that it could sell
excess coal at US$28/ton, a 17% premium to FY10 average realizations of CIL.
We believe RPWR’s stock is reflecting most of the upside, but the market is
overlooking: 1) fuel supply risks for Butibori, Samalkot, and Krishnapatnam,
2) policy risks for pricing of excess coal; 3) likely delay in receiving
environment clearances for Sasan and Tilaiya coal mines; and 4) funding
constraints leading to equity dilution.
Valuation
Maintain Sell (on CL) and our 12-m SOTP-based TP of Rs91, implying 30%
potential downside.
Key risks
(1) More clarity on pricing of its excess coal—having market-based
realizations, and (2) commissioning of projects ahead of expected timelines.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Asia Pacific Conviction Sell List
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Power (RPOL.BO)
Sell Equity Research
Butibori visit: On track, but stock already implies perfect execution
What's changed
We visited Reliance Power’s (RPWR) 2x300 MW Butibori project located
near Nagpur. The key takeaways of our site visit were: 1) 42% of overall
project is complete and the hydro test for Unit 1 is scheduled in June 2011.
Butibori project team expects COD to be around 1Q2012, which is in line
with our expectations; 2) 70% of the material for Unit 1 and 2 is at the site
and work on railway sliding and transmission infrastructure is in progress.
Implications
Our site visit and recent newsflow on Sasan and Samalkot projects indicate
that execution is underway and now there is higher visibility on timelines for
commissioning of these projects. We, however, believe that RPWR valuations
are not only implying perfect execution of its 20GW of capacity in the pipeline,
but also reflecting an option value of RPWR’s ability to sell about 18 mn
tons of excess coal from mines allocated for their UMPP projects.
While existing policy allows RPWR to transfer excess coal to nearest Coal India
Limited (CIL) subsidiaries at government notified prices (which is almost at
cost, in our view), we think RPWR’s stock price is implying that it could sell
excess coal at US$28/ton, a 17% premium to FY10 average realizations of CIL.
We believe RPWR’s stock is reflecting most of the upside, but the market is
overlooking: 1) fuel supply risks for Butibori, Samalkot, and Krishnapatnam,
2) policy risks for pricing of excess coal; 3) likely delay in receiving
environment clearances for Sasan and Tilaiya coal mines; and 4) funding
constraints leading to equity dilution.
Valuation
Maintain Sell (on CL) and our 12-m SOTP-based TP of Rs91, implying 30%
potential downside.
Key risks
(1) More clarity on pricing of its excess coal—having market-based
realizations, and (2) commissioning of projects ahead of expected timelines.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Asia Pacific Conviction Sell List
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