After having fallen 4 per cent over the last year, the stock of private power producer Reliance Power is hovering somewhere around its lowest levels since its listing in 2008. So far, the stock has always traded below its listing price.

While the company’s prospects seem better now and the stock appears cheap, there are still some uncertainties. Investors could retain their holdings but avoid fresh exposure.

At ₹64, the stock now trades at 0.8 times its 2015-16 consolidated book value, much below its historical average of 1.8 times.

Reliance Power operates 5,285 MW capacity, comprising largely three coal-based projects — Rosa in Uttar Pradesh, Butibori in Maharashtra and Sasan in Madhya Pradesh. The last 660 MW unit of the 3,960 MW Sasan Ultra Mega Power Project (UMPP) is expected to be commissioned by the year-end.

Besides, the company has large capacity expansions lined up in the coming years. Most of these planned projects are at the initial stages of development and will show results only two-three years from now. Those invested in the stock could make gains once these projects become operational.

More immediately, the coming one-two quarters could see some rise in revenues, thanks to the recently commissioned units of the Sasan UMPP.

The company’s access to captive coal resources for some of its large projects lends comfort on the fuel front. Besides, in contrast to many power companies, Reliance Power has a relatively low debt-to-equity ratio (consolidated) of 1.5 times.

On the flipside though, it faces uncertainties related to power tariffs at some of its largest projects. It has filed tariff review petitions with the Central Electricity Regulatory Commission (CERC) and the APTEL (the appellate authority) for the operational Sasan plant and the yet-to-be-set-up Krishnapatnam plant.

The final word is yet to be heard on the matter. The company intends to commence work on the 3,960 MW Krishnapatnam UMPP only when the tariff issue is resolved.

Power produced at the Rosa plant and the Butibori plant is sold to customers at regulated tariffs which allow for cost pass-through.

As regards the Sasan UMPP, the company has filed tariff review petitions with the CERC and APTEL, due to a rise in its costs on several counts and an order on the matter is awaited.

Last year, the CERC rejected the company’s claim that March 30, 2013 is the commissioning date for the Sasan project. This has meant that higher tariffs allowed to the company in subsequent years, as provided under the power purchase agreement, would be applicable only from a later period. Reliance Power has however, appealed against this order.

Fuel linkages When it comes to coal, Reliance Power is placed on a firm footing. It has coal linkages with Coal India for its plants at Rosa and Butibori.

Besides, it has been allocated coal mines with a target production of 65 million tonnes per annum (mtpa), along with its UMPPs at Sasan and Tilaiya.

The company’s operational Moher and Moher-Amroli Extension mines were spared the large scale Supreme Court-ordered de-allocation of last year.

While this came as a big relief, the Court directive that coal from the blocks allocated for a UMPP could only be used for that particular project, interferes with the company’s plan to use the surplus coal for its Chitrangi plant.

The company also has coal mine concessions in Indonesia. The mines are currently under development and have target production of 30 mtpa.

But while the company is well placed on the coal front, its 2,400 MW gas-based Samalkot project has been stranded for want of gas.

Financial performance Even as Reliance Power posted 70 per cent (CAGR) growth in revenue, its net profit grew at 11 per cent between 2010-11 (when it commenced power generation) and 2013-14.

A near-tripling of depreciation and finance expenses during this period impacted the company’s profit growth.

For the half-year ended September 2014 too, the company reported 45 per cent growth in consolidated revenue but the net profit was flat.

While revenue growth is likely to be modest in the coming few years, this is set to change once additional capacity starts coming up.

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