Higher Taxes And Depreciation Hit Reliance Power

ADAG group company, Reliance Power has reported a two-fold jump in its sales to Rs 1464 crore in the December quarter of 2012 against Rs 457 crore that it had reported a year earlier. Its net profit however jumped 30% to Rs 265 crore. EBITDA margins were up nearly 300 basis points on a year-on-year basis.

The company has reported a 143% rise in its generation from its 1200 MW Rosa Plant. These strong numbers have come after it commissioned a total of 940 MW of generating capacity in the past four quarters and hence the Q3FY13 numbers also reflect a low-base impact. Reliance Power had come up with good numbers in the first two quarters of the current fiscal and has maintained this link in Q3FY13 as well.

EBITDA margins of Reliance Power have come in at 33.63%. Though the power and fuel costs have increased, the higher revenues acted as a hedge against them. Due to the new capacity additions, its deprecation expenses have increased by 117% to Rs 70 crore. Interest expenses also doubled to Rs 149 crore on a YoY basis. The effective tax rate for the company during the quarter was 33% compared to 19% a year before. All of these have capped its net profit to Rs 265 crore.

The company currently has a total operating capacity of 1840 MW and is expecting to add another 300 MW from the Butobori project in Q4FY13. Its pre-commissioning activities at its first unit (660 MW) of its 3960MW Sasan UMPP have already started and it is expecting to commission this unit by end of the current fiscal. It is also nearing commissioning of its 145 MW renewable energy capacity in the next two quarters. Overall it expects an operational capacity of 2945 MW by June 2013.

For its Sasan projects, the company has already started coal production from the Moher mines.  These mines have a capacity of 20 MTPA. It has also received forest clearance for its Chhatrasal mine which has a capacity of 5 MTPA.

The stock reacted positively to the results, but the delayed projects and CAG allegations are major issues hurting it. Despite the capacity additions in the last four quarters, the stock has been trading in a very tight range. It is better to avoid the euphoria that is currently surrounding this counter to stay away from any disappointment in future.