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TP : Rs155
Investment Rationale
§ Huge captive coal potential with reserves of about 3bn MT and annual production potential of 95mn MT in next
5-7 years offers (1) fuel security and (2) one of the cheapest cost power (fuel cost in the range of Rs0.40/unit)
§ Significant progress achieved in its power plant/coal mine execution -either in line or ahead of schedule
§ Posting excellent operational performance as against other IPPs subdued performance - we have increased its
earnings estimates substantially (+15%) versus other IPPs substantial (-25%) downgrades
§ Merchant capacity only in plants with captive coal - excellent strategy
§ None of the current problems of private power utilities are applicable - fuel (captive), merchant prices (merchant
capacity to be only in captive fuel plants) and SEB bad health (cheap supplies)
§ Even in case of Krishnapatnam, the Indonesian law impact is likely to be insignificant in the worst case scenario
Valuations
§ Mid-term triggers - 1) COD of 4,260MW by Dec12 (incl. 1 unit of Sasan), 2) coal production in Sasan - Jun12, 3)
milestones in Tilaiya & Indonesian mines & 4) gas plant and gas supplies
§ Solidity in the business model and positive triggers are being ignored with Reliance power valuations implying
long term merchant rate of Rs1.3/unit, very safe
§ We foresee RPL as the most sustainable private utility. Buy with Fair value of Rs155/Share
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