Spark’s Update on Reliance Power…

 Reliance Power is in a better position than peers to generate cheaper power, because of high captive coal reserves, lesser logistics expense due to proximity of mines to plants and low-cost debt financing.

• The company has one of the highest captive coal reserves - 65 million tonne at peak production - most of which has got environment clearances.
• Most power plants are close to captive mines, thus lowering cost of logistics.
• Also, the company has raised debt at a much lower rate than industry average.

These factors would enable Reliance Power to produce power at cheaper rates, lowering offtake risk from financially weak state electricity boards.

 
The company, which has 600 MW operational power plant at Rosa in UP, is operating at a high capacity utilization when peers are struggling due to lack of fuel supply and buyers.
For the quarter ended June, Reliance Power, a part of the ADAG, reported a 15% rise in sales, 28% in operating profit and 51% in net profit. Plant load factor, or capacity utilisation, was 91% and plant availability factor, or plants available for production, was 94%, much higher than industry average.

The company is also in a better position with regards to its Indonesian coal mines. Due to Indonesia's tax levy, coal-linked projects of companies such as Reliance Power (Krishnapattam project), Tata Power,

Adani Power would become less profitable. As the Krishnapattam project is in early stages, Reliance Power has stalled all its construction activity for which it will have to pay a penalty of 300 crore, which is less than 2% of the total project cost. If the company doesn't go ahead with this project, it would still be able to sell coal from its Indonesian mines, which is very unlikely for others as they are in advanced stage of project development. Indonesia is among India's largest coal suppliers.

Timely commissioning of its upcoming projects can rerate the stock. The company aims to expand capacity to 5,000 MW by December, 2012 from 600 MW and its plans are on track. At the current market price of 84, Reliance Power's scrip trades at a valuation little higher than its peers and this premium is justified.

Stock prices of Reliance Power on August 25, 2011. (Courtesy Economictimes.com)

 

BSE

82.75

-00.78%

-00.65

Vol:501252 shares traded

NSE

82.80

-00.48%

-00.40

Vol:1567353 shares traded

 

 

 

 

 

 

 

 

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