Reliance Power reported weak earnings with net income of Rs 2.7 billion (-33% y-o-y) owing to weak generation and reversal of revenues of Rs 400 million during the quarter. Progress on setting up of gas-based facilities in Bangladesh is encouraging with a PPA finalised for Phase I (745 MW). Maintain ‘Sell’ rating with a revised target price of `34/share (from `37/share previously).
Lower generation at Rosa (59% PLF in Q4FY17) and reversal of `400 million of revenues for Sasan led to weak results for Reliance Power with EBITDA of `10.6 billion, 6.6% below our estimates of `11.4 billion. Higher interest cost and an effective tax rate of 24% led to 22% miss in net income at `2.1 billion (KIE `2.7 billion).
The drop in generation was on account of maintenance shut down for one unit at Butibori during the quarter, and back down of power demand from UP in the case of Rosa. Higher contribution of Sasan in the overall generation mix for the quarter led to a drop in blended realisations (`2.4/kwh) and fuel cost (`0.99/kwh).
RPWR ended the full year FY2017 with revenues of `104 billion (-2.5% y-o-y), EBITDA of `45 billion (-6.5% y-o-y) and net income of `11 bn (-19% y-o-y) on gross generation of 41 BU (-3% y-o-y). Earnings would have been worse off if under-recovery of `1.7 on fuel cost as per MERC order had been accounted for (currently on appeal in the SC).
RPWR has finalised the power purchase agreement for phase I (745 MW) of gas-based capacities in Bangladesh. RPWR envisages an investment of $1 billion in phase I, which also includes $300 million likely to be spent for setting up an LNG terminal.
We note that the $700 million for the power plant includes cost of main plant equipment that will be re-located from Samalkot to Bangladesh, towards which capital expenditure has already been incurred. The capital cost for the project appears on the higher side but this will not impact profitability under the fixed return tariff (dollar denominated) regime being pursued by the company.
Progress on setting up of gas-based capacities in Bangladesh is encouraging. Clarity on transfer of equipment from Samalkot instead of fresh procurement as was being previously considered, helps resolve our concerns. We have revised our earnings estimates for FY2018 and FY2019 downwards by 2.3% and 10% respectively to factor in higher recurring interest cost and lower other income among other adjustments.