Reliance Power: A long way to go

The company’s plan to raise funds for its 37,000 Mw plant looks like an uphill task.

First the good news, Reliance Power has a commissioned capacity of 1,000 Mw. The company’s power plant in Rosa, which it acquired from group company Reliance Infrastructure, is operational and in the first phase has a capacity of 600 Mw. RPower, which won three ultra mega power projects — Sasan in Madhya Pradesh, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand — is expected to add 36,000 Mw by 2017. While the Sasan and Tilaiya projects are pit-head plants having assured coal linkages, the Krishnapatnam will have to depend on imported coal. The company has announced a financial closure of this 4000-Mw ultra mega power project, with a 75:25 debt equity ratio. However, the Street is jittery over the pace of execution, since the company has never executed such large scale projects before.

While the company has taken several measures to fast-track the projects, it has not worked for the market. RPower has tied up with Chinese equipment makers for its plants, but the experience of other power producers hasn’t been too good with these suppliers. Other power producers that took a similar approach are still struggling with plant stabilisation.

In addition, it is widely perceived that since the Sasan UMPP has captive coal linkages and price of power has been pre-determined, the company is dragging its feet on the project and pushing the nearby Chitrangi project, which plans to use coal from Sasan’s mines. Analysts allege that the company is probably doing this so that it can use coal from Sasan to feed Chitrangi, as power tariffs of this plant are not fixed.

While the matter is in court, the market isn’t very sure about how RPower is progressing in Sasan. As an analyst says, when a company is delivering returns, the Street tends to forgive certain transgressions. But, in this case, the market is extremely concerned about the company’s project execution capabilities. Abhishek Khosla, Associate MAPE Advisory Group, believes the company’s total fund requirement is to the tune of Rs 140,000 crore (2012-14), out of which equity requirement would be around Rs 42,000 crore.

To make matters worse, the company’s third quarter results have been below expectations. Profit before tax for the third quarter stood at Rs 77.9 crore. The reported profit after tax is higher at Rs 140 crore, due to tax benefits of Rs 54. 4 crore and lower depreciation on account of change in depreciation accounting norms.

On the downside, the company’s plant load factor (PLF) for Rosa continues to be weak in the third quarter. With Rosa operating at 54 per cent PLF, in line with the state electricity board’s guidance of not using imported fuel, ICICI Securities has trimmed the stock’s target price to Rs 102 from Rs 120. It is primarily to account for increased risk-free rate, weak core operational performance and risks associated with a far-flung execution schedule. Further, negative newsflow surrounding the Group is an added overhang.