Maintain 'reduce' on Reliance Power - TP maintained at Rs.68 - Geojit BNP Paribas Financial Services

- 3QFY13 sales were above analysts' estimates on higher incentives, higher coal costs that are passed through to customers and higher generation.

- EBITDA was also higher than analysts' estimates by 27% on stronger sales.

- However, PAT was only 2% higher than analysts' estimates on higher interest expenses and tax rates.

- Despite a strong 3QFY13, earnings estimates for the near term are at risks because of delay in commercializing Butibori and Sasan unit 1 (expected to start operations by March-April 2013 against the earlier expectation of January 2013, lack of visibility on coal supplies for the 600 GW Butibori project and potential delays in regulatory clearances for the Butibori project.

- The target price of Rs.68 is based on forecasting project - wise free cash flows to the firm for the next 15 years.

- The valuation is based on 8.3 GW of power generation capacities and excluding Chitrangi, Talaiya and hydro power plants under development, Indonesian coal mines and CBM assets.

- 'Reduce' rating and the target price may not hold good if Reliance power going ahead with its Chitrangi project after all roadblocks are out of the way, or Reliance Power starting construction of 3.96 GW Talaiya UMPP after getting forest clearances and acquiring land, or sustainable rebound in global coal prices giving the cue to Reliance Power to start production from Indonesian coal mines.

Source : Equity Bulls

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