Reliance Power Increasing ‘RELIANCE’; Upgrade to buy ::Emkay

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Reliance Power

Increasing ‘RELIANCE’; Upgrade to buy

BUY

CMP: Rs 120                                       Target Price: Rs 153

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n     Q411 PAT of Rs1.9bn beat est. due to better PAF (89%) and PLF (87%) at Rosa (post UPPCL’s approval) - PAT at Rs904mn in Q411 vs Rs398mn in Q311. Rosa to earn ROE of 25%

n     Building solidity - (1) huge cheap captive coal, (2) merchant capacity in captive coal plants only, (3) plants near load centers (PoC), (4) minimizing cost of capital & (5) low to reasonable tariffs - offtake and payment risk minimized 

n     Mid term positive triggers - 1) COD of 4,260MW by Dec12 (incl one unit of Sasan), 2) coal production in Sasan, 3) milestones in Tilaiya & Indonesian mines & 4) gas supplies

n     Solidity and positive triggers ignored with valuations implying LT merchant rate of Rs2.3/unit, very safe. We foresee RPL as the most sustainable private utility; upgrade to Buy