Reliance Power Ltd. - Q2 result on expected lines. Stock started moving finally!!

Reliance Power announced Q2 numbers exactly as per expectations, though slightly better EBITDA and Cash Profit numbers. The following charts shows the progress of Reliance Power's Quarterly numbers since Sept'2013 Quarter to Sept'2015 Quarter:

The Quarterly numbers clearly show the step up since June'2015 quarter when the company started consolidating Sasan UMPP's numbers. This is expected to be the biggest step-up in numbers the company will see in many future quarters. Reliance Power's numbers will see more small step-ups when the company's Solar or Hydro Power projects will start adding to the company's consolidated numbers. A 100 MW Concentrated Solar project is ready and the company should soon start consolidating it's numbers. Then there is the 700 MW Solar PV project being implemented in Rajasthan, which will come on stream by the end of next fiscal. Reliance Power also has quite a few Hydro Power projects totaling over 5000 MW capacity, in it's pipeline, but their exact status is not known.

Reliance Power is expected to report an EPS of close to Rs.5 for FY'16, while the Cash-EPS is expected to be over Rs.9.50/-. Considering the strong Cash position of the company after having successfully commissioned it's largest Greenfield project, Reliance Power has today announced it's Maiden Interim Dividend of Re.1 per share. This is a big development for the company's shareholders. It is the first dividend from the company in it's over 7 years of listed history. This is a good start. The interim dividend will consume a little less than 25% of the company's H1 FY'16's Cash Profit and about 40% of the H1's Net Profit. The company will need some capital for CAPEX required for new projects. So we cannot expect very high dividend payouts, even 20% of Annual Profits will be good enough. But Reliance Power's annual dividends will see gradual improvement in line with improvement in annual profits.

Have a look at Reliance Power's share price movement. From a high of over Rs.110 in June'2014, the stock was continuously falling. The stock seems to have made a bottom during the recent Aug-Sept market correction. After hitting lows of about Rs.33, the stock has seen a smart rally to around levels close to Rs.50/-. The stock is attempting to cross it's 200-Days Moving Average now. Once successful, we can expect Reliance Power's stock price to get into an uptrend and march towards the 3-digit mark over the next 6-12 months.

Happy Investing!! 

Reliance Power - on a Sasan UMPP booster!!

Until Q4 of FY'15, Reliance Power's Quarterly Total Income had stabilised around the Rs.1800 crores mark & Cash Profit was around the Rs.375 to 390 crores range. In my previous report on Reliance Power I had mentioned my expectations from the company's first UMPP at Sasan. I was expecting an addition of about Rs.800-850 crores to the Quarterly Revenues and an addition of Rs.100 crores to the Quarterly Cash Profit, on the conservative side. The Interest burden was expected to consume most of the revenues from this project.

But the Q1-FY'16 result clearly proved that my estimates were quite conservative truly. RPower's Total Income jump was around Rs.1000 crores, while Cash Profit jumped by around Rs.200 crores. Infact the project even contributed to the company's Net Profit right in the first quarter of consolidation!! This performance is much better than expected. In absolute sense, RPower's Total Income was higher by 58% Y-o-Y, EBITDA was higher by 82%, Cash Profit was higher by 58% and Net Profit was higher by 41%. We can expect similar kind of number for the remaining 3 quarter of this year.

Trailing-Twelve-Months Numbers

We can expect RPower's T-T-M Total Income to progress from a little over Rs.8200 crores currently to closer to about Rs.12000 crores by the end of this fiscal. RPower's T-T-M EBITDA, which currently stands at little under Rs.3500 crores, will progress to a little over Rs.5000 crores over the next 3 quarters and the Cash Profit will go past the Rs.2300 crores mark. Now look at the Market Cap chart above. RPower's Market Cap has continuously fallen from levels close to Rs.30,000 crores at the end of June'14 to under Rs.12,000 crores today (at a price of under Rs.42/- per share today.). This is completely senseless, isn't it? RPower's annual Cash Profit is expected to improve to over Rs.2300 crores in the next three quarters and the company is valued at just about 5 times of that number!! This is irrationally low valuation and reflects the fear that investors have in their minds about Power companies in general and the disappointment & anger associated with RPower during it's IPO time. But it is excellent opportunity for those investors who can ignore the above two factors.

Reliance Power is one company in the power sector which is have good operational projects with no issues related to fuel availability to these operating projects. No issues related to repayment of debt even at the consolidated level. All it's projects are working at very healthy PLF levels of over 80% comfortably, quarter after quarter. RPower clearly has healthy Cash Position, unlike most other Private sector power producers who are struggling even to cover their operating costs & interest payments. Despite all these positives, RPower is trading at such pathetic valuations. Just doesn't make any sense.

I think RPower deserves to double from current levels over the next 3-4 quarters to get to a Market Cap of 10 times it's annual Cash Profits, if not more. At a price of about Rs.80-85 per share, RPower will still be trading at about 18 times it's T-T-M expected EPS of about Rs.4.50 to 5/-.

Another positive is that RPower is not going aggressively after increasing it's Thermal Power capacities. I think this is positive because there are many thermal power projects which are currently struggling. Instead RPower is increasing it's Renewable Power capacities, mainly Solar. RPower has 45 MW Solar PV capacity operational in Rajasthan since the last year or so, and another 45 MW Wind Power capacity operational in Maharashtra. Both these projects together are generating about 3.5 crore units of electricity every quarter, translating into revenues of around Rs.200 crores & with negligible operating costs. During the June'15 quarter, another 100 MW Concentrated Solar Plant in Rajasthan has started generating electricity and will add to the company's revenues and cash profits from Sept.'15 quarter. At the same time RPower is working on commissioning another 700 MW Solar PV capacity, which could get operational sometime during the next 12-18 months.

During the recent Bangladesh visit of our PM, there was news about Adani Power & Reliance Power investing in setting up Thermal power capacities in that country. In case of Reliance Power, that project is not going to entail Huge Capex as the company already has Project Equipment ready & unused at one of it's proposed project site in Andhra Pradesh, which never took off due to lack of Gas availability. Reliance Power has announced that it will be using the same equipment for the Bangladesh project. I am not giving too much importance to this project currently because it is atleast 3 years away from commissioning.

As of now we should focus on the current operating capacities and the upcoming Solar capacities only.

Reliance Power Ltd. - Q4 FY'15 update.

Reliance Power had another steady quarter with Total Income growing by 20% Y-o-Y during Q4. EBITDA was higher by 33.6%, thanks to higher margins from lower fuel cost. But the Cash Profit was higher only by 15.5% mainly because of 57.5% increase in Interest Cost. 62% higher Depreciation provisioning and 70% higher Tax outgo meant that the Net Profit was nearly flat with less than 3% growth.

( Click here of Reliance Power's Easy Results Summary page. )

Remember that Reliance Power has not started consolidating revenue & profit numbers from 3960 MW Sasan UMPP and the new 100 MW Concentrated Solar Power plant in Rajasthan. Most probably this will start from Q1 on this fiscal. During FY'15, Reliance Power generated & sold a total of 1239 crore units of electricity from it's 4 active projects: 1200 MW Rosa plant in UP, 600 MW Butibori plant in Maharashtra, 40 MW Solar plant again in Rajasthan and 45 MW Wind project in Maharashtra. Total Revenues for the year stood at Rs.7202 crores, translating into an average rate of Rs.5.80 per unit of electricity sold by Reliance Power. This average rate number will drop sharply as soon as the numbers from Sasan UMPP start getting consolidated because the selling rate for units from that project is just about Rs.1.20-1.30 per unit.

Have a look at the Trailing-Twelve-Months charts alongside. The Total Income & EBITDA was quite stable between March'13 to March'14. Then the Butibori project numbers started getting consolidated from June'14 and hence the Total Income & EBITDA started going up noticeably. The Cash Profit grew at a slower rate mainly because of the sharp increase in the Interest Cost from June'14 quarter onwards. IF no new project was to get commissioned now, the charts would again have stabilised. But we are expecting Sansan UMPP and the 100 MW CSP in Rajasthan to start adding to RPower's numbers from June'15 quarter onwards. So the upswing in the charts is expected to continue. Infact the upmove in Total Income chart could be stronger than last year. EBITDA & Cash Profit growth might be moderate, depending on the profitability of the Sasan project.

Since the selling price of power produced at Sasan UMPP is very low, the impact of RPower's Topline is not going to be as big as the Project's generation capacity suggests. This one project is tripling RPower's active Generation capacity from little under 2000 MW to little under 6000 MW. But Revenue growth is not going to be 200%. It will be around 50%. If Sasan project runs around the 85-90% PLF levels, then the Income from this project for the year could be in the region of Rs.2800 to 3200 crores. Since the Coal mine is linked to the project, the Fuel purchase cost will be zero. Only the cost of mining the coal & other operating costs will be included. I am expecting all the operating & non-operating costs for this project to be around Rs.700-800 crores, which will translate into very high EBITDA margins. Interest Cost is expected to increase by around Rs.1500-1800 crores. That means the Cash Profit should grow by about Rs.300 to 500 crores over the year. But the Net Profit of RPower could drop from current levels, because the Depreciation provisioning for Sasan UMPP is expected to be high at about Rs.900-1000 crores every year.

The number above are just rough estimates that I had in my mind. In terms of quarterly numbers, we could see RPower report a Total Income figure of around Rs.2300 to 2500 crores, once Sasan numbers are added. EBITDA could jump to about Rs.1275 to 1300 crores. Cash Profit could be around Rs.500 to 550 crores. Net Profit could drop to about Rs.100 crores. If there is no major further CAPEX immediately, the company can use the Cash Profits to start repaying the loans, which will bring down the Interest Costs and improve the Net Profits. But if the company has further projects to spend on, then the Cash Profits will get utilised there. Let's see. RPower's numbers are expected to grow and the growth is Cash Flow positive. That's the important thing.

Over the recent couple of months, Reliance Power's stock has got further corrected to levels under Rs.55/-, translating into a Market Cap of just about Rs.15,000 crores. This is very very cheap valuations. The company is expected to generate Cash Profits of over Rs.2000 crores in FY'16. That means it is trading at just about 7 times it's expected Cash Profit, which is very low. There is substantial scope for the stock to get re-rated higher in the coming months, unless there is some ugly surprise in the numbers in the coming quarter or two. But I don't think that's going to happen. I am positive on Reliance Power and expect the stock to a range of Rs.75 to 90 anytime over the next 12 months.

Reliance Power - Solid & Steady performance deserves higher Valuation

When Anil D. Ambani Group (ADAG) launched the IPO for Reliance Power in early 2008, it was marketed as if it is one of India's biggest Power Companies. But in reality the company had absolutely no project on the ground, only plans on papers. At the IPO price, the company was valued at over Rs. 1 lakh crores, which was way absurd and only Stupids jumped in to apply for the IPO. And Indians proved that there are millions of Stupids who don't need any financial logic when it comes to trying their luck in the Stock Market. I had tried my best to discourage as many people as possible from applying for the RPower IPO, but most people just ignored me.

It's been 7 years since the IPO and now the company trades at a Market Cap of just around Rs.18,000 crores, i.e. just about 1/6th of the IPO valuation. But the other major difference is that RPower now has atleast a few projects operational and few other in different stages of development. The projects implementation has not happened as per RPower initial projections with several projects getting delayed due to various reasons. As of now RPower has operational capacity of around 6000 MW, comprising of 5800 MW from Coal-fired Thermal plants and 200 MW from renewable sources. Currently RPower is recognising revenue from it's 1200 MW Rosa power plant, 600 MW Butibori power plant, 40 MW Solar PV plant in Rajasthan and 45 MW Wind generation capacity in Maharashtra. Very soon RPower will start recognising revenues from it's Sasan UMPP of 3960 MW, which will give a big booster to the company's topline. RPower's Total revenues for the last 3 quarters are hovering around the Rs.1800 crores mark. This could easily jump to over Rs.2500 crores mark once revenues from Sasan UMPP start getting added. The interesting part is going to be the profitability of that project. Sasan UMPP is linked to it's own Coal mine & hence raw material cost isn't a big problem. But the selling price per unit is very very competitive at just about Rs.1.20 per unit. RPower is trying to negotiate a slightly higher price claiming that the substantial change in Rupee-Dollar rate & huge jump in Diesel prices impacted the company's CAPEX plans for the project substantially.

Apart from Sasan UMPP, RPower has another UMPP linked to a coal mine, where the development work is currently progressing. That project could get commissioned in another 18-24 months. Apart from that RPower has several Hydro Power projects in it's fold amounting to a total of about 5200 MW and the project construction work is progressing on some of them. Few of those capacities are expected to be commissioned in FY'16. RPower recently commissioned a 100 MW Concentrated Solar Power project in Rajasthan, which too will add some revenues going forward. The company also signed another MOU with Rajasthan Govt to contruct another large Solar project. Going by the stream of projects that are under construction/development, RPower will see capacity & revenue boost every 2-3 quarters going forward over the next 3 years.

RPower's T-T-M Cash Profit stands at about Rs.1500 crores on a Total Revenue of about Rs.7000 crores. That means the company is currently enjoying a Cash Profit margin of 21%. I am expecting this to get diluted gradually to about 18% over the next 12 months as some new projects get on stream, which will lead to a substantial hike in the Interest Cost. But the increase in Topline should ensure that Cash Profit continues to grow, though at a slower rate initially. Once the operating projects mature, the margins will gradually improve. At the current Market Cap of just under Rs.18,000 crores, RPower trades at about 12 times it's T-T-M Cash Profit and under 18 times it's T-T-M Net Profit. This kind of valuation is neither cheap nor expensive, but I think it is not considering the potential growth over the next 2-3 years. I think RPower deserves to trade at 12 times it's 1-year forward Cash Profit or atleast 15 times it's T-T-M Cash Profit number. I think RPower is currently trading at a discount of about 20% to it's Fair Value and the Fair Value is expected to increase with every passing quarter. Not just that, RPower is even trading below it's Book Value, at about 5% discount. Compare these valuations to the public sector company NTPC, which is India's biggest Power Generation company, and one will find that RPower's valuations are really cheap on many counts. NTPC trades at 1.5 times it's Book Value and about 9 times it's T-T-M Cash Profit. But remember that NTPC has not reported any growth for the last 3 years and it's Cash Profit margins are lower than RPower's margins despite the fact that NTPC's projects are much much older than RPower's. Consider this.... NTPC's quarterly revenues are currently about 10 times that of RPower's revenues, but it's Interest Cost is less than 3 times. Remember that Interest Cost is a substantial thing for any Capital Intensive business like Power Generation and any change in Interest Cost impacts the company's margins to a great degree.

In short RPower's current valuations at a price of about Rs.60 per share are quite attractive and offer a good scope of appreciation in the coming quarters as well as over the long term.