In a fiscal year that hasn’t been kind to power producers, Reliance Power Ltd (RPower) has underperformed the BSE power index despite continually beating Street expectations of its earnings.
In the three months ended December, consolidated net profit increased 30% over a year ago to Rs.266 crore, the best pace in four quarters, driven by a 135% gain in total income.
With its Rosa power plant in Uttar Pradesh working at full capacity after a tepid second quarter, Reliance produced 2,407 million units of power in the December quarter, up 143% from a year ago. This was expected and led to a three-and-a-half times increase in earnings before interest, taxes, depreciation and amortization, or Ebitda.
Indeed, the gain in net profit was crimped by a doubling of finance costs and halving of other, or investment, income. That would suggest RPower is deploying the money in building capacity.
But what could help it in the days ahead is the positive news flow, which will not only boost production but also offer pointers to solve the fuel problem faced by all power generators in the country.
For one, the company has commissioned the second unit of its 600 megawatts (MW) Butibori project in Maharashtra. Secondly, it has started coal production at its 20 million tonnes per annum (mtpa) Moher coal mines and received first-stage clearances for its Chhatrasal mines—both captive mines for its Sasan power project in Madhya Pradesh.
The management has indicated that the first unit of this 3,960MW factory is expected to be commissioned in a few weeks. With that, RPower’s capacity is expected to reach 2,545MW at the end of this fiscal, against 1,240MW a year ago. However, that is not to say that concerns will go away entirely. It is not clear whether the company has signed long-term fuel supply agreements for its Butibori project.
Management updates are also awaited on the progress of its Indonesian mining operations, which were initially expected to kick-start early this year.
Moreover, the petition to increase power rates for the Sasan project and the government ruling for excess coal mined from this project’s captive mines are near-term triggers to watch out for.
Still, with earnings growth on track and valuations at a discount to peers such as Tata Power Co. Ltd and Adani Power Ltd, there is some upside in the stock as Friday’s 5.4% gain shows.
Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May 2010 front-page story in Mint that it disputed. HT Media is contesting the case.