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Reliance Power (RPWR)
Utilities
Maintenance shutdown mars operational performance. Reliance Power (RPWR)
reported a tepid operational performance, with PLF of the operating power plant
dropping to 77% due to annual maintenance shutdown, though a change in
accounting policy boosted other income by Rs770 mn. We continue to maintain our
negative stance as execution delays and uncertainty over availability of fuel continue to
pose significant earnings risk. Maintain SELL with price target of Rs87/share.
Higher overheads offset by other income (due to change in accounting policy)
RPWR reported revenues of Rs4.9 bn (-10% qoq, 189% yoy), operating profit of Rs1.2 bn (-35%
qoq, 326% yoy) and net income of Rs2.4 bn (20% qoq, flat yoy) against our estimates of Rs4.9
bn, Rs1.6 bn and Rs1.9 bn, respectively. Operating profits miss of 23% was primarily on account
of higher-than-estimated overhead expenses (Rs0.7/kwh against our estimate of Rs0.4/kwh).
However, higher-than-estimated other income (Rs2.6 bn against estimated Rs1.9 bn) and lower
tax rate led to net income beat. We note that a change in accounting policy for recognizing
income from mutual funds led to other income being higher by Rs771 mn during the quarter. We
discuss the key operational and financial highlight of 2QFY12 result in subsequent section.
Bleak prospects of securing gas in near term, value-accretive Chitrangi still some time away
Continued uncertainty over availability of gas prompts us to further delay earning contribution to
FY2014E (versus FY2013E previously), even though we continue to remain circumspect on longterm
availability of gas for the Samalkot project.
RPWR’s most value-accretive project, Chitrangi (3,960 MW) still remains slow on execution with
construction activity at plant site yet to commence. We note that Chitrangi is yet to achieve
financial closure with RPWR having so far incurred only 5% of the total project cost, delaying
commissioning of the project to FY2016E. Further, the decision by the Indonesian Government to
impose a minimum obligatory pricing for all coal export contract has put RPWR’s Krishnapatnam
UMPP on a standstill, while execution progress on the Tilaiya UMPP continues to remain tepid.
Retain SELL with target price of Rs87/share
We reiterate our SELL with a revised target price of Rs87/share (previously Rs88). We maintain our
cautious stance on RPWR given the limited visibility on near-term earnings growth and high degree
of execution and fuel risk embedded in the portfolio. We have revised our EPS estimates for
FY2012E to Rs2.7/share (previously Rs2.9/share) and for FY2013E to Rs3.2/share (previously
Rs2.9/share) as we account for (1) delays in commissioning of projects, (2) higher fuel cost for
operational coal-based project and (3) higher other income.
Operational and financial highlights of 2QFY12
We discuss below some key operational and financial highlights
Generation – RPWR’s gross generation registered a seasonal decline of 13% sequentially
at 1,030 MU implying a PLF of 77% in 2QFY12.
Fuel cost – average fuel cost increased to Rs2.8/kwh (54% yoy, 9% qoq) indicating the
increased usage of imported coal and open market purchases (now at 40%).
Correspondingly, estimated average realizations increased to Rs4.9/kwh.
Other income – RPWR changed its accounting policy for recognition of income from
mutual funds having fixed maturity plan. Consequently, other income for the quarter was
higher by Rs772 mn.
Tax – effective tax rate was 15% during the quarter
Key highlights of Annual Report 2011
Capex – RPWR incurred an estimated capex of Rs73 bn in FY2011 bulk of which was on
Sasan, Butibori and Rosa II. We note that CWIP of Rs126 bn includes an estimated Rs32
bn of capex incurred on Samalkot (Rs8 bn) and Krishnapatnam UMPP (Rs24 bn). We note
that capex run rate has picked up significantly in 1HFY12 with an estimated capex of
Rs68 bn in 1HFY12.
Consequent to the merger with Reliance Natural Resources Ltd (RNRL), RPWR took on its
books US$300 mn of 4.928% FCCB. These FCCBs were redeemed on their due date
October 17, 2011 thus yielding no dilution.
Standalone investments include Rs2.2 bn of investment in Rajasthan Sun Technique
Energy Private Ltd (RSTEPL), RPWR’s subsidiary that is developing 100 MW solar-power
plant in Rajasthan. We highlight that against the investment of Rs2.2 bn made by RPWR
in RSTEPL, RPWR received Rs2.15 bn as Inter Corporate Deposit (ICD) from RSTEPL.
Standalone loans and advances of Rs75 bn include Rs24.8 bn of ICDs with subsidiaries
and Rs37 bn of share application money pending allotment. This includes Rs11 bn to
Rosa (RSPCL), Rs4.7 bn to Butibori (VIPL), Rs9 bn to Krishnapatnam (CAPL), Rs12/4 bn to
Chitrangi (CPPL) and Rs8.2 bn to Samalkot (SMPL). Further, loans and advances include
Rs10.1 bn of external ICDs.
We highlight that out of Rs19 bn of consolidated cash, Rs2.5 bn has been classified as
remittances in transit and/or cheques in hand (the corresponding figure as of March 2010
was Rs16.7 mn).
Sundry debtors as days of sales were high at 120 days as of March 2011. We, however,
highlight that debtors reduced to 89 days of sales as of September 2011.
Status of power projects and associated captive coal blocks
Rosa II (600 MW) – the project has achieved all necessary milestone and construction is in
progress (boiler hydro test has been completed). The project has linkage from CCL (E
grade coal). Management has guided for commissioning by March 2012. The plant will
sell entire 600 MW to UPPCL at regulated rates.
Butibori (600 MW) – the project has achieved all necessary milestone and construction is
in progress (boiler drum lifting as been completed). The project has linkage from WCL (D
grade coal). Management has guided for commissioning by July 2012.
Sasan UMPP (3,960 MW) – all necessary clearances and approvals in place and
construction has commenced. Management has indicated that production from Sasan
coal block is likely to commence by 2012. Peak production is likely to be 25 mtpa. A part
of the coal will be used for Chitrangi project. Management has guided for commissioning
of first unit by January 2013 and commissioning of entire project by June 2014.
Krishnapatnam UMPP (3,960 MW) – all necessary clearances and approvals in place.
RPWR has acquired 3 coal mines in Indonesia for the project. Management has indicated
that production from Indonesian mines will commence by mid-2013. Management has
indicated that they are currently in process of evaluating the development with regards to
Indonesian regulation and are not committing any capex until further clarity emerges on
the same.
Tilaiya UMPP (3,960 MW) – the project is yet to achieve financial closure. Management
has indicated that production from Tilaiya coal block will likely commence by 2013. Peak
production from the project will be 40 mtpa, part of which will be used to fuel expansion
at Tilaiya. Mining plan for the coal block has been approved.
Chitrangi (3,960 MW) – the project is yet to achieve financial closure and acquire the
entire land for the plant. Project will use excess coal from captive coal blocks allocated for
Sasan UMPP. Management has guided for commissioning of first unit by June 2014 and
full commissioning by September 2015.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Power (RPWR)
Utilities
Maintenance shutdown mars operational performance. Reliance Power (RPWR)
reported a tepid operational performance, with PLF of the operating power plant
dropping to 77% due to annual maintenance shutdown, though a change in
accounting policy boosted other income by Rs770 mn. We continue to maintain our
negative stance as execution delays and uncertainty over availability of fuel continue to
pose significant earnings risk. Maintain SELL with price target of Rs87/share.
Higher overheads offset by other income (due to change in accounting policy)
RPWR reported revenues of Rs4.9 bn (-10% qoq, 189% yoy), operating profit of Rs1.2 bn (-35%
qoq, 326% yoy) and net income of Rs2.4 bn (20% qoq, flat yoy) against our estimates of Rs4.9
bn, Rs1.6 bn and Rs1.9 bn, respectively. Operating profits miss of 23% was primarily on account
of higher-than-estimated overhead expenses (Rs0.7/kwh against our estimate of Rs0.4/kwh).
However, higher-than-estimated other income (Rs2.6 bn against estimated Rs1.9 bn) and lower
tax rate led to net income beat. We note that a change in accounting policy for recognizing
income from mutual funds led to other income being higher by Rs771 mn during the quarter. We
discuss the key operational and financial highlight of 2QFY12 result in subsequent section.
Bleak prospects of securing gas in near term, value-accretive Chitrangi still some time away
Continued uncertainty over availability of gas prompts us to further delay earning contribution to
FY2014E (versus FY2013E previously), even though we continue to remain circumspect on longterm
availability of gas for the Samalkot project.
RPWR’s most value-accretive project, Chitrangi (3,960 MW) still remains slow on execution with
construction activity at plant site yet to commence. We note that Chitrangi is yet to achieve
financial closure with RPWR having so far incurred only 5% of the total project cost, delaying
commissioning of the project to FY2016E. Further, the decision by the Indonesian Government to
impose a minimum obligatory pricing for all coal export contract has put RPWR’s Krishnapatnam
UMPP on a standstill, while execution progress on the Tilaiya UMPP continues to remain tepid.
Retain SELL with target price of Rs87/share
We reiterate our SELL with a revised target price of Rs87/share (previously Rs88). We maintain our
cautious stance on RPWR given the limited visibility on near-term earnings growth and high degree
of execution and fuel risk embedded in the portfolio. We have revised our EPS estimates for
FY2012E to Rs2.7/share (previously Rs2.9/share) and for FY2013E to Rs3.2/share (previously
Rs2.9/share) as we account for (1) delays in commissioning of projects, (2) higher fuel cost for
operational coal-based project and (3) higher other income.
Operational and financial highlights of 2QFY12
We discuss below some key operational and financial highlights
Generation – RPWR’s gross generation registered a seasonal decline of 13% sequentially
at 1,030 MU implying a PLF of 77% in 2QFY12.
Fuel cost – average fuel cost increased to Rs2.8/kwh (54% yoy, 9% qoq) indicating the
increased usage of imported coal and open market purchases (now at 40%).
Correspondingly, estimated average realizations increased to Rs4.9/kwh.
Other income – RPWR changed its accounting policy for recognition of income from
mutual funds having fixed maturity plan. Consequently, other income for the quarter was
higher by Rs772 mn.
Tax – effective tax rate was 15% during the quarter
Key highlights of Annual Report 2011
Capex – RPWR incurred an estimated capex of Rs73 bn in FY2011 bulk of which was on
Sasan, Butibori and Rosa II. We note that CWIP of Rs126 bn includes an estimated Rs32
bn of capex incurred on Samalkot (Rs8 bn) and Krishnapatnam UMPP (Rs24 bn). We note
that capex run rate has picked up significantly in 1HFY12 with an estimated capex of
Rs68 bn in 1HFY12.
Consequent to the merger with Reliance Natural Resources Ltd (RNRL), RPWR took on its
books US$300 mn of 4.928% FCCB. These FCCBs were redeemed on their due date
October 17, 2011 thus yielding no dilution.
Standalone investments include Rs2.2 bn of investment in Rajasthan Sun Technique
Energy Private Ltd (RSTEPL), RPWR’s subsidiary that is developing 100 MW solar-power
plant in Rajasthan. We highlight that against the investment of Rs2.2 bn made by RPWR
in RSTEPL, RPWR received Rs2.15 bn as Inter Corporate Deposit (ICD) from RSTEPL.
Standalone loans and advances of Rs75 bn include Rs24.8 bn of ICDs with subsidiaries
and Rs37 bn of share application money pending allotment. This includes Rs11 bn to
Rosa (RSPCL), Rs4.7 bn to Butibori (VIPL), Rs9 bn to Krishnapatnam (CAPL), Rs12/4 bn to
Chitrangi (CPPL) and Rs8.2 bn to Samalkot (SMPL). Further, loans and advances include
Rs10.1 bn of external ICDs.
We highlight that out of Rs19 bn of consolidated cash, Rs2.5 bn has been classified as
remittances in transit and/or cheques in hand (the corresponding figure as of March 2010
was Rs16.7 mn).
Sundry debtors as days of sales were high at 120 days as of March 2011. We, however,
highlight that debtors reduced to 89 days of sales as of September 2011.
Status of power projects and associated captive coal blocks
Rosa II (600 MW) – the project has achieved all necessary milestone and construction is in
progress (boiler hydro test has been completed). The project has linkage from CCL (E
grade coal). Management has guided for commissioning by March 2012. The plant will
sell entire 600 MW to UPPCL at regulated rates.
Butibori (600 MW) – the project has achieved all necessary milestone and construction is
in progress (boiler drum lifting as been completed). The project has linkage from WCL (D
grade coal). Management has guided for commissioning by July 2012.
Sasan UMPP (3,960 MW) – all necessary clearances and approvals in place and
construction has commenced. Management has indicated that production from Sasan
coal block is likely to commence by 2012. Peak production is likely to be 25 mtpa. A part
of the coal will be used for Chitrangi project. Management has guided for commissioning
of first unit by January 2013 and commissioning of entire project by June 2014.
Krishnapatnam UMPP (3,960 MW) – all necessary clearances and approvals in place.
RPWR has acquired 3 coal mines in Indonesia for the project. Management has indicated
that production from Indonesian mines will commence by mid-2013. Management has
indicated that they are currently in process of evaluating the development with regards to
Indonesian regulation and are not committing any capex until further clarity emerges on
the same.
Tilaiya UMPP (3,960 MW) – the project is yet to achieve financial closure. Management
has indicated that production from Tilaiya coal block will likely commence by 2013. Peak
production from the project will be 40 mtpa, part of which will be used to fuel expansion
at Tilaiya. Mining plan for the coal block has been approved.
Chitrangi (3,960 MW) – the project is yet to achieve financial closure and acquire the
entire land for the plant. Project will use excess coal from captive coal blocks allocated for
Sasan UMPP. Management has guided for commissioning of first unit by June 2014 and
full commissioning by September 2015.
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