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Reliance Power (RPOL.BO)
Sell Equity Research
In line with expectations: Rising operating profit, but rich valuations
What surprised us
Reliance Power (RPWR) reported FY11 PAT of Rs7.6bn vs. GSe of Rs7.7bn
and Bloomberg consensus of Rs7.2bn. Though reported PAT was in line
with GSe, the lower-than-expected EBITDA of Rs2.5bn vs. GSe of Rs4.8bn
was offset by a lower tax rate of 1.5% vs. GSe of 17%. RPWR indicated that
FY11 PAT for its Rosa project is Rs1.3bn vs. GSe of Rs1.0bn, primarily due
to incentives associated with savings in heat rate norms. RPWR guided for
ROE on this project to be in the range of 25% going forward.
Key takeaways from analyst meeting: 1) Rosa II (600MW) could be fully
operational by FY12; 2) Unit - 1 of Butibori (300MW) operations to begin by
March 2012; 3) Samalkot (2400 MW) likely to commence operations by Sep
2011, though no visibility on gas supplies yet; 4) Sasan Unit 1 (660MW)
targeted for Dec 2012, which looks aggressive, in our view; 5) Work on
Indonesian coal mines has started, and RPWR plans to sell a portion of coal
in the open market before the start of its Krishnapatnam project; and 6)
Piling work has been completed at its Chitrangi project.
What to do with the stock
Maintain Sell (on CL) on RPWR and our 12-m SOTP-based TP of Rs91, implying
potential downside of 22%. While RPWR stock price likely already reflects
execution of 20GW of capacity and option value of its excess coal, we believe
downside risks due to shortage of gas and likely equity dilution are still not
reflected in share price. RPWR is trading at FY12E 49X P/E vs. sector avg of 14X
and at FY12E P/B of 2.0X with ROE of 4.2% vs. sector avg of 2.1X with avg ROE
of 14%. While we adjust our FY11 EPS with reported PAT, we increase our
FY12E/13E EPS by 7%/5% to reflect higher ROE for Rosa project. Key risk:
Completion of projects ahead of estimated timelines
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Power (RPOL.BO)
Sell Equity Research
In line with expectations: Rising operating profit, but rich valuations
What surprised us
Reliance Power (RPWR) reported FY11 PAT of Rs7.6bn vs. GSe of Rs7.7bn
and Bloomberg consensus of Rs7.2bn. Though reported PAT was in line
with GSe, the lower-than-expected EBITDA of Rs2.5bn vs. GSe of Rs4.8bn
was offset by a lower tax rate of 1.5% vs. GSe of 17%. RPWR indicated that
FY11 PAT for its Rosa project is Rs1.3bn vs. GSe of Rs1.0bn, primarily due
to incentives associated with savings in heat rate norms. RPWR guided for
ROE on this project to be in the range of 25% going forward.
Key takeaways from analyst meeting: 1) Rosa II (600MW) could be fully
operational by FY12; 2) Unit - 1 of Butibori (300MW) operations to begin by
March 2012; 3) Samalkot (2400 MW) likely to commence operations by Sep
2011, though no visibility on gas supplies yet; 4) Sasan Unit 1 (660MW)
targeted for Dec 2012, which looks aggressive, in our view; 5) Work on
Indonesian coal mines has started, and RPWR plans to sell a portion of coal
in the open market before the start of its Krishnapatnam project; and 6)
Piling work has been completed at its Chitrangi project.
What to do with the stock
Maintain Sell (on CL) on RPWR and our 12-m SOTP-based TP of Rs91, implying
potential downside of 22%. While RPWR stock price likely already reflects
execution of 20GW of capacity and option value of its excess coal, we believe
downside risks due to shortage of gas and likely equity dilution are still not
reflected in share price. RPWR is trading at FY12E 49X P/E vs. sector avg of 14X
and at FY12E P/B of 2.0X with ROE of 4.2% vs. sector avg of 2.1X with avg ROE
of 14%. While we adjust our FY11 EPS with reported PAT, we increase our
FY12E/13E EPS by 7%/5% to reflect higher ROE for Rosa project. Key risk:
Completion of projects ahead of estimated timelines
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