Buy Reliance Power; target of Rs 140: Emkay

Emkay Global Finance Services is bullish on Reliance Power and has recommended buy rating on the stock with a target of Rs 140 in its November 6, 2012 research report.

“RPWR’s 2Q13 PAT of Rs2.4bn (APAT at Rs2.2bn) came above our expectations of Rs2.1bn led by (1) better availability declared by Rosa plant and (2) truing up revenues of Rs280mn booked related to FY12 and previous quarter. Rosa PAF during the quarter and half year ended Sep’12 stood at 78% and 80% respectively. Rosa has achieved lower PLF of 63% during the quarter vs. 76% in 2Q12 due to (1) backing down by state (~2% PLF impact), (2) annual maintenance at Unit-1 of Rosa-I for 60days and (2) 15days shutdown at Unit-2 of Rosa-I due to turbine related issues. Average core RoE during the quarter was 7.5% vs. 7.2% in 1Q13 and 8.0% in 2Q12.”

“Management has hinted towards intentional delay (mines ready for production) in production start from Indonesian mines due to unfavorable international coal prices. We now factor in- (1) ~15 months delay in production and (2) lower realizations by $5/ton to $40/ton. This drives earnings cut of 7.7% for FY14E. Our FY13E EPS is fine tuned. Despite likely delay in Indonesian operations, we believe that near term growth triggers are still intact to drive 10-15% upside - 1) Sasan 1st unit commissioning in Dec’12, 2) Chhatrasal stage1 clearance expected shortly, 3) start of construction at Chitrangi/Sasan expansion and 4) land acquisition for Tilaiya. We think that upside beyond 10-15% will require clarity on 1) excess coal use and 2) Indonesian mine operations. Maintain Buy with revised PT Rs140 (lower value of Indo mines) vs. Rs155/sh earlier,” says Emkay Global Finance Services research report. 

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