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UBS Investment Research
Reliance Power
Captive domestic coal key strength
[ EXTRACT]
Reliance Power has 2bn tonnes of domestic coal reserves
Reliance Power has one of the largest coal reserves in private sector (nongovernment)
in India. The company has been allotted coal mines with 2bn tonnes
of reserves (versus 730m tonnes required for the life cycle of the 8,000MW Sasan
and Tilaiya UMPPs), a critical advantage. We believe the market is ignoring the
fuel security available to the company. We also think there is no risk of coal blocks
being de-allocated as mine development is on track.
Significant positives in the past 12 months
The key positives in the past 12 months were: 1) approval for 40mtpa at the Tilaiya
mine; 2) a Rs450bn contract with Shanghai Electric for main plant equipment for
30,000MW of coal-based projects; 3) a Rs34bn contract with GE for a 2,400MW
gas project; and 4) MOUs with Chinese banks and Ex-Im Bank for Rs750bn in
financing. We think Reliance Power could emerge as a cost leader due to its
captive coal, less expensive Chinese equipment and external debt financing.
We lower our FY12/FY13 EPS estimates 21%/49%, respectively
We lower FY12/FY13E EPS from Rs3.27/6.65 to Rs2.57/3.42 on lower PLF (from
90% to 85%) and a lower contribution from Rosa II. We are conservative in our
commissioning schedule estimates and factor in a six- to nine-month delay.
Valuation: price target from Rs120.00 to Rs105.00; from Sell to Buy
We use a DCF valuation methodology and only include 13,680MW of projects.
Our key assumptions are: 1) a risk-free rate of 8.3%; 2) risk premium of 5.5%; and
3) a FY15 tariff of Rs2.75/unit for the Chitrangi power station.
Reliance Power
Reliance Power is a subsidiary of Reliance-ADA Group (one of India's largest
business groups) in the power generation sector. With a project pipeline of
28,200MW, Reliance Power targets to become one of the largest private sector
generation companies in India by 2017. The projects are well diversified with a
coal:gas:hydro mix of 52:36:12, and plants in six states across 13 locations.
Reliance Power expects to start power generation in FY11.
Statement of Risk
We believe the key risks are regulatory, execution, and the timely and costeffective
fuel procurement for its power projects
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Power
Captive domestic coal key strength
[ EXTRACT]
Reliance Power has 2bn tonnes of domestic coal reserves
Reliance Power has one of the largest coal reserves in private sector (nongovernment)
in India. The company has been allotted coal mines with 2bn tonnes
of reserves (versus 730m tonnes required for the life cycle of the 8,000MW Sasan
and Tilaiya UMPPs), a critical advantage. We believe the market is ignoring the
fuel security available to the company. We also think there is no risk of coal blocks
being de-allocated as mine development is on track.
Significant positives in the past 12 months
The key positives in the past 12 months were: 1) approval for 40mtpa at the Tilaiya
mine; 2) a Rs450bn contract with Shanghai Electric for main plant equipment for
30,000MW of coal-based projects; 3) a Rs34bn contract with GE for a 2,400MW
gas project; and 4) MOUs with Chinese banks and Ex-Im Bank for Rs750bn in
financing. We think Reliance Power could emerge as a cost leader due to its
captive coal, less expensive Chinese equipment and external debt financing.
We lower our FY12/FY13 EPS estimates 21%/49%, respectively
We lower FY12/FY13E EPS from Rs3.27/6.65 to Rs2.57/3.42 on lower PLF (from
90% to 85%) and a lower contribution from Rosa II. We are conservative in our
commissioning schedule estimates and factor in a six- to nine-month delay.
Valuation: price target from Rs120.00 to Rs105.00; from Sell to Buy
We use a DCF valuation methodology and only include 13,680MW of projects.
Our key assumptions are: 1) a risk-free rate of 8.3%; 2) risk premium of 5.5%; and
3) a FY15 tariff of Rs2.75/unit for the Chitrangi power station.
Reliance Power
Reliance Power is a subsidiary of Reliance-ADA Group (one of India's largest
business groups) in the power generation sector. With a project pipeline of
28,200MW, Reliance Power targets to become one of the largest private sector
generation companies in India by 2017. The projects are well diversified with a
coal:gas:hydro mix of 52:36:12, and plants in six states across 13 locations.
Reliance Power expects to start power generation in FY11.
Statement of Risk
We believe the key risks are regulatory, execution, and the timely and costeffective
fuel procurement for its power projects
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