Reliance Power
Company Overview
Reliance Power Limited is a flagship company of the Reliance ADAG (Anil Dhriubhai Ambani Group).The company is established to develop, construct and operate power projects both domestically and internationally. The company has currently through its own holding and through subsidiaries a portfolio of almost 35,000MW of power generation capacity, majority of which is under construction. Currently it has about 600 MW of operational power generation assets.
The company owns contracts for the three UMPPs (Ultra Mega Power Projects) of 4000 MW each to be set up at Sasan, Krishnapatnam and Tilaiya. The power projects are located near strategic fuel supply centres or load centres. The projects under development include
- Seven Coal-fired projects to be fuelled by coal reserves from captive mines in India and abroad
- Two Gas-fired projects to be fuelled primarily by reserves from the KG Basin
- Seven Hydroelectric projects, six of them in Arunachal Pradesh and one in Uttarakhand.
Reliance Power is also considering the development of coal bed methane (CBM) power generation projects based from CBM blocks being exposed by its affiliates.
Sector Overview
The Indian Power Sector is facing huge supply shortage and is grossly lagging demand. As per the recent Power Ministry data (31 Jan 2011) India has a total installed capacity of 1,70,229 MW. The private sector contributes 35,280 MW (13.5%).
On the basis of different type of fuels there are predominantly Thermal Power plants ( 64.6%) consisting of Coal fuelled (53.3%), Gas fuelled (10.5%) and Oil fuelled (0.9%). Hydro Power contributes 24.7% and Nuclear power a mere 2.9% of the total capacity.
The 12th Five-Year Plan has a requirement pegged at 88,000 MW, of which 13,000 MW is to be fed from renewable energy sources. Out of the 75,000 MW slated to come up through conventional energy sources (coal, gas and large hydro projects) the private sector is expected to be the biggest contributor (62%) with 46,500 MW.
Chief Competitors
The key competitors from the public sector are NTPC Ltd, NHPC Ltd, SJVN Ltd while the major private sector players include Tata Power, JSW Energy, Torrent Power, Adani Power, Indiabulls Power etc. Incidentally of the 4 Ultra Mega Power Projects (4000 MWs) auctioned by the Government of India so far Reliance has bagged 3 (Sasan, Krishnapatnam and Tilaiya) while Tata Power has the fourth one (Mundra).
Power Projects
Let us look at the status of the different power projects and their present execution status. The major cause of concern for the company are the mammoth Ultra Mega Power Projects (UMPPs) along with the other projects.
1. Ultra Mega Power Projects
Sasan -1 : (3960 MW) For this project in Singrauli, Madhya Pradesh the land acquisition and environmental clearence has been obtained, as well financial closure has been obtained. The company has captive coal mines for the project and operations are scheduled to commence from 2013.
Krishnapatnam -1 : (3960 MW) For this project in Nellore, Andhra Pradesh the land acquisition and environmental clearence has been obtained, as well financial closure is currently under progress. The company have tied have coal from captive coal mines in Indonesia for the project and operations are scheduled to commence from 2013.
Tilaiya -1 : (3960 MW) For this project in Hazaribagh, Jharkhand the land acquisition has been done for the power plant and environmental clearence has been obtained, as well financial closure has been obtained. The company has captive coal mines for the project and operations are scheduled to commence from 2015
2. Operational Projects
Among the current operational projects the major ones are Rosa Phase 1 ( 600 MW, UP, Commissioned in 2010). While the other ones are Samalkot ( 220 MW, AP), Kochi ( 165 MW, Kerala), Zuarinagar ( 165 MW, Goa) . While Rosa is Coal based, all other three are Naptha based projects. Under Rosa Ph-I company is producing 630 MW against installed capacity of 600 MW ( 105% efficiency).
3. Power Projects under construction (Coal Based)
Among the coal based power projects the company will see major capacity coming in 2012 from the projects at Rosa Phase II (600 MW, UP) and Butibori ( 600 MW, Maharashtra) . For the coal linkages company has tied up with Central and Western Coal fields. The EPC (Engineering Procurement & Construction) Contract lies with Reliance Infrastructure limited.
4. Gas Based Projects
Among the gas based projects for the one in Samalkot ( 2400 MW, AP) the company has acquired land, obtained clearances and got the EPC awarded. The KG Basis gas is yet to be awarded. Black & Veatch will design this project worth Rs 10,000 Crores.
Other projects in the pipeline are Dadri ( UP ), Shahpur ( Maharashtra ) , Bharuch ( Gujarat ) which are at elementary stage and will only be finalized once gas allocation from the Krishna Godavari basin is finalized as per Govt. of India allocation policies.
5. Hydro Electric Projects
The Hydro Electric Projects conceived are still at a nascent stage of development and will only materialize post 2015 to 2017. The company plans four such projects at Siyom (1000 MW, Arunachal Pradesh), Tato II ( 700 MW, Arunachal Pradesh), Urthing Sobla ( 400 MW, Uttarakhand ), Kalai II, Amulin, Emini & Mihundon ( Combined 2520 MW, Arunachal Pradesh ). The projects are at the stage of report preparation and obtaining land and environmental clearances.
Share Price Movement
While the share prices has been moving in the range of Rs 106-192 in the last one year, currently it is trading at 35% discount to the 52 Week high price and about 18% over its 52 Week low. The stock which was issued through the IPO of Rs 430 ( Retail ) and Rs 450 (Institutional) never saw any significant upsurge. Even after the bonus issue of 3:5 the price reduced by nearly 40 per cent to Rs 269 for retail investors (who paid Rs 430 a share) and by 37 per cent to Rs 281 for institutional investors. The IPO investors are still at heavy losses with price hovering at Rs 123 currently.
In the recent merger of Reliance Power with another ADAG group company Reliance Natural Resources Limited (RNRL) the swap ratio was 1:4 ( RPOWER : RNRL) . After dilution Reliance Power is having 2,805 million shares with FY11 book value of Rs 59.4. The promoter holding in has come down to 80.4% from 84.8% due to lower promoter stake in RNRL. Reliance Infrastructure's stake in Reliance Power has come down to 38.4 % from 45.0% after the merger. The deal will lead to EPS dilution for the existing shareholders as Reliance Power. Reliance Power announced a string of mega equipment ordering deals of 32.4GW and financing MoUs worth Rs775bn in Q2 FY11. 30GW boiler, turbine, generator equipment (BTG) order worth Rs450bn has been placed with Shanghai Electric Co. (SEC). The capacity contracted includes equipment for power projects to come up at Chitrangi, Krishnapatnam and Tilaiya, and some expansion projects. The company has also entered into financing MoUs of Rs540bn with leading Chinese Banks such as Bank of China, China Development Bank, Industrial and Commercial Bank of China, and The Export-Import Bank of China to finance Chinese exports. It has also executed a MoU with Export-Import Bank of United States (EXIM Bank) under which the Bank will make available up to Rs225bn over the next three years for the group’s various projects. After the recent correction in the power space, the risk-reward scenario may look better but problems are aplenty. The major pain faced by power companies include While the short term outlook seems negative for the power sector companies, the problems faced by Reliance Power are even critical. Given the huge project pipeline of projects, the execution risk looms large of the company. There are uncertainties in terms of visibility towards project completion, nascent stage of development. After the company lost the case against RIL regarding gas supply, the current supply for its gas based projects is not certain. Additional coal requirements are also a concern given the reduced output from Coal India. The recent merger of Reliance Natural Resources Limited (RNRL) with Reliance Power has resulted in equity dilution for the latter. Furthermore in order to fund its expansion plans the company needs to dilute further equity over the next year. Given the current negative scenario, it is recommended to SELL the stock. Once clarity emerges on the above issues and there is some visibility in terms of revenues and executions one can consider the stock at a later date. Merger of Reliance Power and RNRL
Recent Developments
Short Term Outlook
Recommendation: SELL
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