Reliance Power Excellent operating result; maintain Buy:: Emkay

n Reliance Power’s (RPWR) 3Q13 APAT of Rs2.6bn was better
than our estimates due to higher availability (103% vs. 93%
estimated) – Rosa PAT was Rs2b in 3Q vs. 1.4b in 2Q13
n Sasan UMPP remains on track to commission in FY13 itself.
Hinting at start of construction in Sasan II/Chitrangi in next
few months. Clarity likely post 4Q on Tilaiya and Butibori
n Triggers ahead - 1) Sasan 1st unit COD in Feb/Mar-13, 2)
construction at Chitrangi/ Sasan-II, 3) MERC approval to
Butibori PPA with Reliance Infrastructure, 4) Tilaiya land
acquisition & 5) Chhatrasal stage II forest clearance
n We maintain our earning estimates for FY13 and FY14. With
the stock trading at 1.2x FY15 book; we maintain Buy with a
longer term view & a PT of Rs140/sh. Earnings momentum to
start from FY15. Risk: no value from excess coal assets
Better than expected result on higher availability factor
RPWR’s 3Q13 APAT of Rs2.57bn (+26%yoy) was ahead our estimate of Rs2.47bn on
account of better than expected PAF (103%) and PLF (92%) at Rosa. More importantly,
the growth in profit was achieved even after c50% yoy drop in other income as the cash
was deployed in incremental capex. Rosa contributed to APAT by Rs2bn, taking the
ROE for 3Q13 to 10.6% vs. 7.5% during 2Q13 and 8.0% during 3Q12.
3Q13 highlights – Sasan UMPP on track for commissioning during FY13
During the conference call, the management highlighted several key developments
during the quarter, such as - (1) steam blowing completed at Sasan UMPP and the first
unit should be commissioned during Feb/Mar-13 itself; coal mining for the project
stabilized, (2) Stage I forest clearance received for Chhatrasal mines, (3) Land and other
infrastructure ready for the Chitrangi project and the work should start once there is
clarity on clearance, (4) Butibori plant should start generation from 1st April 2013 and
there are various options to sell power till Apr-14. The long-term PPA with Reliance Infra
to sell power on cost-plus basis is before the MERC.
Maintain Buy with a longer-term view, with various trigger in the near term
We believe the management has followed the prudent strategy of not accepting any fuel
risk and as the capacity ramp gather pace, earnings momentum should pick up from
FY15. We maintain our Buy rating and a PT of Rs140/sh. The likely triggers in the nearterm
include – (1) Sasan 1st unit COD in Feb/Mar-13, (2) MERC approval to Butibori
PPA with Reliance Infra and (3) Stage II forest clearance for the Chhatrasal coal block.
The key risk is inability to capture value from the excess coal reserves due to legal
hurdles.

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