Reliance Power Synchronises First Unit Of Its Sasan UMPP

The Power sector is likely to witness a rise in the generation capacity this year. After Tata Power commissioned power generation from all five units of its Mundra UMPP in the last week, Reliance Power has also synchronized the first unit of its 3960 MW Sasan UMPP. The project has 6 units having a capacity of 660 MW each.

Having grounded work at its Krishnapattnam UMPP and Samalkot project, Reliance Power is taking efforts to commission the available projects immediately. It has also commissioned a few projects in CY2012 taking the total capacity to 1840 MW by March 2013.

Sasan UMPP is under the CAG’s scanner as there are accusations about the government favouring Reliance Power in the Sasan UMPP. The government's decision to allow diversion of the coal from mines linked with Sasan project to its other project Chitrangi UMPP of the same scale looked suspicious. Reliance Power has set the tariffs of Sasan UMPP at Rs 1.17 per unit while that of Chitrangi UMPP are at Rs 2.45 per unit. CAG, in its report, said that Reliance Power would gain a profit of over Rs 29,000 crore with a net present value of Rs 11,852 crore.

The company has now started coal production from Sasan's captive coal mines and it should thus be a positive sign for the company.

We expect some positive move in the stock over this news. The stock, however, has shown a very bearish move in CY2013 as it has tanked over 20% on a YTD basis to Rs 76. The bearish stance is due to the projects that are long halted and therefore the future cash flows remains doubtful. We continue to maintain our suggestion to avoid the scrip.