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Negligible progress in project pipeline

Following clarification on accounting for two prior period items?pre-tax gain of R345m from reversal of provision towards diminution in value of advance to its ESOP Trust and pre-tax gain of R311m on account of a change in depreciation policy for its solar PV facility? provided in the earnings call and subsequent discussion with management, we recalculate our normalised Q4FY14 financials for Reliance Power (RPWR).

Accordingly, we peg RPWR?s Q4FY14 normalised Ebitda at R4.6 billion (in-line with our forecast, but 5% below consensus) and normalised PAT at R1.5 billion (31% / 38% below our/consensus forecasts).

Normalised PAT miss is on account of negligible non-operating income (R64m vs. R1 bn by us) as lower treasury gains and exchange fluctuation losses took their toll.

We peg RPWR?s FY14 normalised Ebitda at R17.9 bn (up 8.7% y-o-y) and normalised PAT at R8.8 bn (down 7.4% year-on-year).

Key balance sheet metrics: Total debt outstanding as on FY14 stood at R300 bn (including R14.6 bn short-term borrowings) implying leverage at 1.54x. Cash and equivalents stood at R27.8 bn.

Rosa: Sequentially, the Rosa facility posted weaker operating metrics in Q4FY14?plant availability (PAF) was 91% in Q4 (97% in Q3) and utilisation level (PLF) was 75% (84% in Q3). For FY14, PAF/PLF stood at 95/78% (vs 92/76% in FY13).

Normalised PAT for the project in Q4FY14 stood at R1.65 bn (down 11% q-o-q) implying a 41% RoE (return on equity) on regulated equity (vs. 46% in Q3FY14 and 50% in Q4FY13), in line with our forecast.

Normalised PAT for Rosa in FY14 stood at R6.45 bn (up 1.5% y-o-y) implying a 40% RoE on regulated equity (flat y-o-y).

Coal consumption mix in Q4FY14 was 60% domestic linkage coal (from CIL), 40% imported coal; in terms of heat-value, the split was 55:45. Fuel cost was R3.3/kWh (vs. R3.2/kWh in Q3) and realisation was R6.2/kWh (vs. R5.8/kWh in Q3). Fuel cost was R3.5/kWh in FY14 (flat y-o-y) and realisation was R5.8/kWh (vs. R5.9/kWh in FY13).

Butibori: As was the case in Q3FY14, RPWR met almost its entire supply obligation under the medium-term PPA (134MW) with Reliance Infra (RELI) ending March 31, 2014 via third-party purchases. During the quarter, RPWR supplied 274MUs to RELI at INR5.2/kWh ? 12MUs of generation at Butibori+ 262MUs third-party power purchases at a cost of R3.3-3.5/kWh.

Unit-2 (300MW) achieved commercial operations (CoD) on March 27. RPWR has started supplying power from both the units to R-Infra under its 25-year power purchase agreement (PPA) commencing April 1, 2014. RPWR

received a provisional tariff for the PPA from the Maharashtra Electricity Regulator (MERC) in January.

RPWR has inked a fuel supply agreement (FSA) with Western Coalfields for one unit whereas it has a letter of assurance (LoA) in place for the other unit. On a longer term basis, the management expects 50-60% of fuel requirement for the facility to be met by domestic linkage.

Sasan: RPWR synchronised Unit-4 (660MW) of its 3,960MW Sasan UMPP last week (May 19) and expects Unit-5 (660MW) to be commissioned by June 2014; no time lines were mentioned for Unit-6 vs. previous guidance of commissioning of the entire project by June 2014.

As regards the petitions filed by RPWR with the central regulator?s (CERC), hearings are completed in two of the four cases, (final order is awaited); whereas next hearing regarding CoD of Unit-1 of Sasan is scheduled on May 27. The petition for tariff relief on account for diesel price deregulation is pending in the appellate tribunal.

RPWR?s normalised Ebitda and normalised PAT for FY14 was 94%/89% of our forecast. Negligible progress in the project pipeline raises the risk of pushback in capacity addition time lines, relative to our assumptions. Maintain Neutral.

?Nomura

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First published on: 26-05-2014 at 21:26 IST
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