Despite a 110 per cent increase in revenues and a 22 per cent jump in net profit for the June 2012 quarter as compared to the previous year, the market has not been impressed with Reliance Power’s results. The stock continues to trade at the same level (Rs 93) as its previous close.
The sharp jump in turnover was on account of commissioning of its Rosa plant, which has doubled its capacity to 1,200 mw. The Rosa plant operated at a plant load factor (PLF) of 78.4 per cent in the June quarter, and currently operates at a PLF of 81 per cent, which could have been higher but for the poor financials of Uttar Pradesh state electricity board. Higher outstandings from the state prevented the company from ramping up its capacity.
The unavailability of coal has resulted in the company resorting to imports, which have increased to 40 per cent of its total requirement. A higher percentage of imported coal and spot purchases resulted in fuel costs rising to Rs 3.02 per kWH as compared to Rs 2.58 per kWH in June 2011. Higher fuel costs and capitalisation of the new unit were the primary reasons for its profit not growing in line with revenues.
Though its results were more or less in line with market expectations, it is the company’s execution capabilities and its promise-versus-performance track record which continues to weigh on investor sentiment.
Against a promise of 18,000 mw to be commissioned by 2015 by coal and gas generation, it has been reported in DNA that the company is cutting down this target by less than half. Reliance Power now intends to commission 8,960 mw of power by 2015. The reason for missing the target is non-availability of fuel, environmental clearances, delay in land acquisition and PPA (Power Purchase Agreement) disputes.
The company priced its IPO at a steep price of Rs 450 (Rs 281.25 adjusted for bonus) per share justifying its 18,000 mw power capacity. Given the current rate of commissioning, it is going to be a very long wait for its IPO investors to realise their price. At the current price too, the stock looks expensive given the fact that it trades at 36 times its estimated FY14 profit.
