Reliance Power’s Net Up By 15%, Interest Expenses Surge

Anil Ambani Group company Reliance Power has reported a 134% growth in its revenues. Despite this, it has reported only 15% growth in the net profit. The company, in Q4FY13, commissioned the first unit of Sasan UMPP of 660 MW taking its operating capacity to 2500 MW as of March 31, 2013.

During the quarter, it has seen an improvement in its EBITDA margins. Its power and fuel cost has moved up by 145%. As a percentage of sales, power and fuel has declined from 62% in Q3FY13 to 54% in Q4FY13 due to which its margins have shown an improvement of more than 300 basis points on a sequential basis. The depreciation cost has doubled as the company commissioned 2 units of Rosa and 1 unit of Sasan UMPP.

The March 2013 quarter has also seen a sharp decline in the company’s other income. For the quarter, its other income stood at Rs 120 crore which has declined to just Rs 17 crore for the March 2013 quarter. Besides, its interest expenses have also surged by 129% from Rs 74 crore to Rs 170 crore on a YoY basis which has eaten most of its superior operational performance. This will remain an issue for the company considering its debt of Rs 26,751 crore by the end of FY13. Its debt to equity ratio, however, remains at 1.4x, which is lower as compared to many other power companies.

The company has reported a current ratio of 1.4x for the year which has decreased from last year’s level of 1.6x. The quick ratio has also decreased to 1.3x while cash ratio has remained at the level of 0.8x. The interest cover ratio has dropped from 3.6x in Q3FY13 to 2.4x in Q4FY13 indicating that the company will have to show a superior performance at the operational level and will have to improve its cash flows. We believe that the interest payments will further rise as new units get commissioned and hence the lower interest cover ratio is an area of concern.

On the projects front, the company has said that it has started coal production from Moher mines from September 2012. The Chhatrasal coal mines have also received stage 1 forest clearance. It has also commissioned a 600 MW Butibori project in Maharashtra. The management has further said that the construction work at Sasan UMPP is on in full swing and the remaining units will get commissioned ahead of schedule.

Despite the positive commentary from the management, the stock has remained negative which indicates that investors are quite negative on the stock. We have consistently remained bearish on the power sector stocks and would therefore maintain our ‘avoid’ call on Reliance Power.