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Reliance Power Ltd------------------------------------------------------ Maintain UNDERPERFORM
Robust 1Q12 results; clarity on Krishnapatna and gas allocation are key factors to watch
● Reliance Power reported a robust 1Q12 PAT of Rs1.96 bn (28%
ahead of our estimate). Strong operating performance at its Rosa
project and 40% higher-than-expected treasury income were key
reasons for the positive surprise.
● Despite being a regulated project, Rosa earned an RoE of 10.8% in
just one quarter, led by its efficient operations (projects on similar
business model at NTPC earn about 19-20% RoE). The company
expects to earn 25-30% RoE on this project on an annualised basis.
● Management highlighted that construction at its Rosa-II (0.6GW),
Sasan (3.96GW) and Butibori projects (0.6GW) is going as
planned. It acknowledged that economics of Krishnapatnam
UMPP would be impacted from change in Indonesian mining
regulations and would not execute the project unless viable.
● We raise our FY12-13E EPS by 6-11% on expected strong
performance at its Rosa project. But, we cut our target price by
15% to Rs110 as we exclude the Krishnapatnam project from
valuation, given the uncertainty on its implementation and our
assumption of only 60% gas supply for the Samalkot project over
FY12-14 (75% earlier).
Strong 1Q12 led by robust performance at Rosa project
Reliance Power’s 1Q12 PAT of Rs1.96 bn was 28% ahead of our
estimate. However, PAT was flat YoY with treasury income (key
contributor to 1Q11 PAT) falling 49% YoY as surplus cash is now
being invested in projects under construction. Positive surprise was
driven by strong operating performance at its 0.6 GW Rosa project
and 40% higher-than-expected treasury income—implied an
annualised treasury yield of about 10%.
Rosa earned a spectacular 10.8% RoE in just one quarter
The Rosa project is based on regulated business model that assures
RoE of 16% (subject to it achieving 85% availability/PAF) and is
entitled to certain incentives based on its efficiency. Similar projects
from NTPC earn about 19-20% RoE on an annual basis. However,
Rosa registered 10.8% RoE in just one quarter
We estimate the Rosa project to have earned incentives of Rs647 mn
during 1Q12. Figure 3 below represents our estimates of incentives
earned from various heads. Most of the incentives are earned from
optimisation of heat rate, which is dependant on coal consumption
and the price of coal. We estimate the company to have operated at a
heat rate of 2300kcal/kwh versus the regulated norm of 2,500kcal/kwh
for sub-critical projects (i.e., lower coal consumption). According to the
company, billing for coal price is based on coal receipts (not on coal
consumed). Rosa received 55% of coal during 1Q12 from
imports/midlings, benefiting the project from higher price of these fuel
versus cheaper domestic coal. Based on management guidance,
Rosa would earn 25-30% RoE on an annualised basis.
Raise EPS by 6-11% for FY12-13; cut target price to Rs110
We increase our FY12-13 earnings estimates by 6-11%, led by betterthan-
expected performance at its Rosa project. But, we cut our target
price by 15% to Rs110 given: (1) we exclude the 4 GW
Krishnapatnam project from our valuation, given the uncertainty on its
implementation (work on the project is not expected to start unless
tariffs are re-negotiated to make it viable) and (2) our revised
assumption of only 60% gas supplies for its upcoming 2.4 GW
Samalkot project over FY12-14 (vs 75% earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Power Ltd------------------------------------------------------ Maintain UNDERPERFORM
Robust 1Q12 results; clarity on Krishnapatna and gas allocation are key factors to watch
● Reliance Power reported a robust 1Q12 PAT of Rs1.96 bn (28%
ahead of our estimate). Strong operating performance at its Rosa
project and 40% higher-than-expected treasury income were key
reasons for the positive surprise.
● Despite being a regulated project, Rosa earned an RoE of 10.8% in
just one quarter, led by its efficient operations (projects on similar
business model at NTPC earn about 19-20% RoE). The company
expects to earn 25-30% RoE on this project on an annualised basis.
● Management highlighted that construction at its Rosa-II (0.6GW),
Sasan (3.96GW) and Butibori projects (0.6GW) is going as
planned. It acknowledged that economics of Krishnapatnam
UMPP would be impacted from change in Indonesian mining
regulations and would not execute the project unless viable.
● We raise our FY12-13E EPS by 6-11% on expected strong
performance at its Rosa project. But, we cut our target price by
15% to Rs110 as we exclude the Krishnapatnam project from
valuation, given the uncertainty on its implementation and our
assumption of only 60% gas supply for the Samalkot project over
FY12-14 (75% earlier).
Strong 1Q12 led by robust performance at Rosa project
Reliance Power’s 1Q12 PAT of Rs1.96 bn was 28% ahead of our
estimate. However, PAT was flat YoY with treasury income (key
contributor to 1Q11 PAT) falling 49% YoY as surplus cash is now
being invested in projects under construction. Positive surprise was
driven by strong operating performance at its 0.6 GW Rosa project
and 40% higher-than-expected treasury income—implied an
annualised treasury yield of about 10%.
Rosa earned a spectacular 10.8% RoE in just one quarter
The Rosa project is based on regulated business model that assures
RoE of 16% (subject to it achieving 85% availability/PAF) and is
entitled to certain incentives based on its efficiency. Similar projects
from NTPC earn about 19-20% RoE on an annual basis. However,
Rosa registered 10.8% RoE in just one quarter
We estimate the Rosa project to have earned incentives of Rs647 mn
during 1Q12. Figure 3 below represents our estimates of incentives
earned from various heads. Most of the incentives are earned from
optimisation of heat rate, which is dependant on coal consumption
and the price of coal. We estimate the company to have operated at a
heat rate of 2300kcal/kwh versus the regulated norm of 2,500kcal/kwh
for sub-critical projects (i.e., lower coal consumption). According to the
company, billing for coal price is based on coal receipts (not on coal
consumed). Rosa received 55% of coal during 1Q12 from
imports/midlings, benefiting the project from higher price of these fuel
versus cheaper domestic coal. Based on management guidance,
Rosa would earn 25-30% RoE on an annualised basis.
Raise EPS by 6-11% for FY12-13; cut target price to Rs110
We increase our FY12-13 earnings estimates by 6-11%, led by betterthan-
expected performance at its Rosa project. But, we cut our target
price by 15% to Rs110 given: (1) we exclude the 4 GW
Krishnapatnam project from our valuation, given the uncertainty on its
implementation (work on the project is not expected to start unless
tariffs are re-negotiated to make it viable) and (2) our revised
assumption of only 60% gas supplies for its upcoming 2.4 GW
Samalkot project over FY12-14 (vs 75% earlier).
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