Reliance Power - Results better than estimates - BRICS

RPWR's Q2FY13 results were better than our expectations, with PAT up 2% yoy to Rs2.4bn vs. our estimate of Rs2.2bn. Revenue increased 121% yoy to Rs10.8bn, driven mainly by increased generation from the Rosa plant, higher tariffs and power sourcing for Reliance Infra. There was a decline in PAF and PLF of Rosa plant due to annual overhauling of Unit 1 and coal shortages. However, post the completion of overhauling, we expect the plant to achieve a higher PAF in 2HFY13. Stock is attractively valued at a P/B of 1.4x FY14. Our SOTP-based fair value for the stock is Rs115/share. Maintain Buy.

Revenue growth fuelled by commissioning of full capacity: Total revenue grew 121.4% yoy to Rs107.9 bn, as generation increased 61.5% yoy to 1655MUs, driven by full commissioning of the 1,200 MW Rosa plant, aided further by tariff hikes (due to escalation in fuel cost) and revenue from Butibori trading. However, PLF and PAF of the Rosa plant declined to 62.5% and 78%, as against 78% and 81% in Q2FY12, due to the annual overhaul of Unit 1 and lower coal supplies from CIL.

PAT up merely 2% yoy: RPWR recorded higher fuel costs, as it used 40% imported coal and 20% washery grade coal, which was reflected in higher tariffs. Generation growth and lower administrative expenses resulted in growth of 228% yoy in EBITDA. Other income declined 61.1% yoy to Rs1.0bn, as RPWR deployed funds for project executions, while depreciation and interest expenses increased 145.7% yoy and 82.4% yoy, due to commissioning of full capacity. Consequently, PAT growth was flat at Rs2.4bn (vs. our estimate of Rs2.2bn).

Outlook: The entire 600MW Butibori plant will be commissioned by Dec 2012, as the boiler light test for 300MW Unit 2 is complete. Coal extraction at Sasan has begun and first 660MW unit is on track for commissioning by Dec 2012. We expect Rosa plant to achieve higher PAF in 2HFY13, following completion of overhauling of its units and improvement in CIL's coal supplies. Tariff hikes by UPERC is also likely to allay fears of default.

Valuation: At FY13 P/B of 1.5x and FY14 P/B of 1.4x, stock trades at attractive valuation. RPWR faces much lower fuel risks vis-a-vis its peers. We believe timely commissioning of projects will act as a trigger for stock. Our SOTP-based fair value for RPWR remains at Rs115. Maintain Buy.

Source : Equity Bulls

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