1. Reliance Power rating Neutral; Adding Sasan

Reliance Power rating Neutral; Adding Sasan

Plant to begin commercial production soon; Rosa chugs along

Published: February 23, 2015 12:09 AM

At R2.5 bn (flat year-on-year), Reliance Power’s (RPWR) consolidated PAT came in 9% above our forecast and in line with consensus. At R6.3 bn (+30% y-o-y), consolidated Ebitda was 7% above our forecast (in line with consensus). Non-operating income  (R951m) and effective tax rate (19%) for the quarter were largely in-line.

While Q3 revenues at R17.3 bn were in line with our/consensus forecast, the Ebitda beat was driven by low employee cost and O&M (operations & management) expenses on account of transfer of a set of employees into the SPV (special purpose vehicle) housing its Sasan project
On its Q3 earnings call, the management said the Sasan project (6x660MW) would be capitalised by March 31 (Unit-6 to begin commercial operations within Q4) and central electricity regulator’s (CERC’s) order relating to tariff relief for this project on account of ‘change in law during construction period’ would translate to a compensation (recognition) of R5 bn (NPV—net present value) towards increased cost of the project to be recovered over the duration of the power purchase agreement (quantum to be decided by CERC). No material update on other projects.

RPWR’s 9MFY15 Ebitda (R18.6 bn, up 39% y-o-y) and PAT (R7.5 bn up 6% y-o-y) comprise 58%/76% of our FY15 Ebitda/PAT forecast for the company. At current market price, the stock trades at 0.8x P/B [BPS book value per share] = R77/share) and 15.9x P/E (EPS = R3.8) on our FY16F forecasts. Maintain Neutral; we are reviewing our target price.

Rosa (1200MW): RoRE at 42% in Q3: Rosa posted healthy, albeit weaker y-o-y operating metrics in Q3FY15 – plant availability (PAF) was 90% (flat q-o-q, 97% in Q3FY14) and utilisation (PLF) was 82% (88% in Q2FY15, ~84% in Q3FY14).

The management said that Rosa contributed 65% of the consolidated revenue/Ebitda/ PAT in Q3. Accordingly, by our calculations, Q3FY15 PAT was R1.7 bn (flat q-o-q, down 8% y-o-y) implying a 42% RoRE (flat q-o-q and 46% in Q3FY14).

Linkage coal comprised 55% of coal consumption in Q3 (vs. 50% in Q2 and 60% in Q3FY14) resulting in a 5% q-o-q decline in cost of generation to R3.3/kWh (but up 3% y-o-y); realisation stood at R5.7/kWh vs. R5.8/kWh in both Q2FY15 and Q3FY14.

Rel-Power

Butibori (600MW): Q3 RoRE at 22% vs. 17% in Q2; final tariff order expected anytime: The management stated that Butibori contributed 27% of the consolidated revenue/Ebitda/ PAT in Q3. Accordingly, as per our calculations, PAT for the project stood at R0.7 bn in Q3 (22% implied RoRE) vs. R0.5 bn in Q2. RPWR is currently booking revenues based on the provisional tariff order issued by the Maharashtra regulator (MERC).

RPWR said while Unit-1 (300MW) continues to get linkage coal from Coal India, Unit-2 is still running on market-based (i.e. e-auction/imported) coal; linkage coal comprised 30% of total coal consumed during the quarter.

Sasan (6x660MW): Commercial startup in FY15: The management stated Unit-6 (660MW) will begin commercial operations (CoD) in Q4. So, Sasan’s P&L (profit & loss) would get reflected in consolidated results starting Q4.

With regard to RPWR’s petition for tariff relief on account of ‘change in law during construction period’, CERC has issued an order earlier this month wherein it has stated that RPWR would be entitled for a relief, but did not decided upon the quantum.As per Article 13.2 (a) of its PPA which states  that– ‘for every R0.5 bn increase in capital cost (due to change in law), RPWR would be compensated at rate of 0.267% of non-escalable capacity charges’. RPWR estimates a compensation of about R5 bn (NPV) to be recovered over the duration of the PPA (implying ~2.6% increase in non-escalable capacity charges).

Orders on two tariff-relief petitions are still awaited from the CERC. With regard to the litigation relating to CoD of Unit-1, hearings are ongoing at the appellate tribunal.

By Nomura

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