Reliance Power Ltd.|Q2FY15 First Cut Analysis | PAT above our expectation, maintain target price of Rs. 118 :: India Nivesh

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Reliance Power reported Q2FY15 consolidated PAT above our expectation due to
better than expected operating margin, higher other income and lower effective
tax rate. EBITDA margin improved 84 bps y-o-y to 33.5% (our expectation was
31.4%) due to lower fuel cost and employee cost. The fuel cost decreased y-o-y
(as a % of Total Income) from 62.59% to 61.27% while employee cost decreased
y-o-y (as a % of Total Income) from 1.72% to 1.35%. Revenue increased by 35%
y-o-y and 1.7% q-o-q to Rs. 17.8 bn (vs. our expectation of Rs. 18.1 bn) due to
higher volumes. Rosa Power Plant operated at 88% PLF during the quarter and
generated 2319 mn unit. Entire 600 MW of Butibori power project reached 100%
availability. We will come out with detailed analysis after the con call scheduled
on November 13, 2014.Update on Projects
 The fourth unit (660 MW) of Sasan UMPP has become operational. Fifth unit
has been successfully installed while construction of the remaining one unit
is on track and likely to commission in the current year.
 Entire 600 MW of Butibori power project reached 100% availability.
 Rosa Power Plant operated at PLF of 88% during the quarter and generated
2319 mn unit.
 The largest 100 MW Concentrated solar power (CSP) project at Dhursar,
Rajasthan has commenced power generation.
Valuation
Reliance Power underperformed the market over the past two years due to higher
fuel prices, change in regulation on Indexation of Indonesian coal, tariff issue of
UMPP and delay in capacity addition. However rapid capacity addition in last couple
of quarters and ease in fuel supply issue coupled with attractive valuation comforts
us that the stock is poised for re-rating from here-on. At CMP of Rs. 75 stock trades
at 0.95x FY16E BV. We maintain BUY rating on the stock with target price of Rs. 118
(based on 1.5xFY16E BV).

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