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Credit Note On Reliance Power Limited

Reliance Power is an Indian energy company that is part of the larger Reliance Group conglomerate. It has over 35,000 MW of power generation capacity in operation and under development from various coal-fired and other power plants. The company's largest shareholders are other Reliance affiliates. Reliance Power plans to focus on securing long-term fuel supplies and locating projects in high demand areas to improve profitability. It faces competition from other Indian power producers but has signed agreements with Chinese firms for equipment supply to help lower costs. The Indian power sector has grown significantly but still faces deficits due to increasing demand outpacing generation additions.

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144 views5 pages

Credit Note On Reliance Power Limited

Reliance Power is an Indian energy company that is part of the larger Reliance Group conglomerate. It has over 35,000 MW of power generation capacity in operation and under development from various coal-fired and other power plants. The company's largest shareholders are other Reliance affiliates. Reliance Power plans to focus on securing long-term fuel supplies and locating projects in high demand areas to improve profitability. It faces competition from other Indian power producers but has signed agreements with Chinese firms for equipment supply to help lower costs. The Indian power sector has grown significantly but still faces deficits due to increasing demand outpacing generation additions.

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Background and Business Description


Reliance Power Limited is a part of the Reliance Group, one of Indias largest
business houses. The group operates across multiple sectors,including
telecommunications,
financial
services,
media
and
entertainment,
infrastructure and energy. The energy sector companies include Reliance
Infrastructure and Reliance Power.
Reliance Power has been established to develop, construct and operate power
projects both in India as well as internationally. The Company on its own and
through its subsidiaries has a portfolio of over 35,000 MW of power generation
capacity, both in operation as well as capacity under development.
Details of Shareholding
Shareholder
Reliance
Infrastructure
Limited
AAA Project
Ventures
Private Limited
Reliance
Enterprises
And Ventures
Private Limited
AAA
International
Capital Private
Limited
Reliance
Capital Ltd
Reliance
Innoventures
Private Limited
Kokila D.
Ambani

% Holding
No. of Shares
1024448193

537387901

2012
36.52%
19.16%

267776331

9.55%

267776331

9.55%

4117823

0.15%

916306

0.03%

465792

0.02%

417439

0.01%

Jai Anmol A
Ambani

4 12 708

0.01%

Tina A Ambani

1 25 000

0.00%

1 000

0.00%

25

0.00%

Anil Ambani

Sonata
Investments
Limited
Master Jai
Anshul
A. Ambani
(through Father
and natural
guardian Shri
Anil D. Ambani)

Company Strategy
Reliance Power intend to focus on reducing the cost of power generation by
acquiring and developing captive fuel sources that will insulate us from the

2
volatility in the market price of fuel and thus allow us to leverage our
operating efficiencies. Reliance Power is doing this by pursuing economies of
scale, securing favourable financing and sharing resources among various
power projects and with their affiliates.
Securing adequate supplies of fuel is critical to the success of a power project.
Reliance Power is taking proactive steps to ensure access to sufficient coal
reserves domestically and globally by investing in additional overseas
opportunities that are a strategic fit with their business. While they have
secured fuel supplies for their entire coal-fired portfolio, they will continue to
strive to control the entire supply chain to ensure continued and uninterrupted
availability and enable them to control costs.
Reliance Powerintends to locate their power projects and enter into off-take
arrangements in power deficit regions that typically support higher marketwide tariffs. They will continue to concentrate their off-take arrangements on
the Western and Northern regions of India, which they believe will comprise
the bulk of power demand in India. Reliance Power also intends to focus on
their merchant off-take sales in these two regions to derive better returns on
power generated from their projects.
Financial trends
The analysis of companys standalone financial performance is as below:
(Rs. In
Billion)
For the period ended March 31.

2012

2011

Total operating income (TOI)

2.767

1.918

EBIDTA

1.371

1.092

Depreciation

0.121

0.100

PBT

0.952

0.772

PAT

0.867

0.760

Net fixed assets

33.56

17.86

Loans and advances Long Term

5.018

7.448

Loans and advances Short Term

1.870

1.203

14.262

5.525

3.892

2.127

Working Capital Bank Finance (C)

0.00

0.00

Guarantee* (D)

0.00

0.00

18.155

7.652

Total Current Assets

5.699

8.029

Total Current Liabilities

3.552

3.135

Net working capital

2.146

4.894

Long term debt (LTD) (A)


Short term debt (STD) (B)

Total Debt (A+B+C+D)

Total Operating income (TOI)

The TOI has increased from Rs. 1.918Billion in FY2011 to Rs. 2.767
Billionin FY2012, recording an increment of 44.26% over the previous
year. The growth in the revenue was mainly on account of full scale
production at all plants due and rise in demand of electricity.
Profitability

In FY2012, reported decrease in EBIDTA margin from 49.54% in FY2011


to 56.93% in FY2012 on account of decreased operating margin and
trading. This was primarilydue toincrease in material cost as all the
power equipments are imported from China so margin reduced.
Sustainability of non-operating income
The company has earned non-operating income of Rs. 1.958Billion FY2012 as
compared to Rs. 1.049 Billion in FY2011. The increase in income is on account
of increase in dividend income and foreign currency transaction & translation.
Liquidity ratio
Liquidity ratios

2012

2011

Current Ratio

31.80

26.50

Quick Ratio

31.80

74.44

Inventory Turnover Ratio


Leverage

As on March 31, 2011, leverageratio of 0.10. Thus, it is a debt free


company and hence has low leverage.
Profitability Ratios
Profitability ratios

2012

2011

Operating Margin (%)

-ve

-ve

Gross Profit Margin (%)

-ve

-ve

92.51

98.06

Adjusted Return On Net Worth (%)

0.71

0.39

Reported Return On Net Worth (%)

1.93

1.72

Return On long Term Funds (%)

1.08

0.61

Net Profit Margin (%)

Market, Market Position and Competition


Demand Supply Scenario

The Indian power sector has grown significantly since 1947 and India
today is the third largest producer of power in Asia. The power

generating capacity has increased from 1,362 MW in 1947 to over


160,000 MW by mid of 2011. Despite significant growth in electricity
generation over the years, the shortage of power continues to exist
primarily on account of growth in demand for power outstripping the
growth in generation and capacity additions in power generation.
Historically, India has experienced shortages in energy and peak power
requirements. The average energy deficit was 9.1% and the average
peak power deficit was 12.8% between FY2003 and FY2010. The gap
between demand and supply has not decreased in the last few years,
leading to persistent power shortages.
Market Position
Reliance Power portfolio of projects includes those in operation, those under
construction and projects under development. Together, it constitutes
an installed capacity of over 35,000 MW which is nearly 20% of Indias current
installed generation capacity. Reliance Power is the largest and the only power
generation company in India to have bagged three of the four Ultra Mega
Power Projects (UMPP) awarded by the Government of India till date.
Competition
In the largest-ever deal between an Indian and a Chinese company, Reliance
Power and Chinese power equipment maker Shanghai Electric (SEC) on
Thursday signed an USD 8.29 Billion agreement in Shanghai for the supply of
36 coal-fired plants to Reliance Power, with a combined capacity of 24,000
MW. This strategic deal would help Reliance Power to emerge as ''the most
valuable power company in India in the coming years. Chinese financial
institutions had financed it. The Chinese banks and FIs are also talking to
other infrastructure companies in India for financing their deals involving
Chinese exports. Thus apart from its size, Reliance ADAG's contract with SEC
is also significant because it could become a trendsetter of sorts, encouraging
other Indian power companies to shop for capital equipment in a country that
is already on its way to becoming one the world's largest suppliers of key
capital equipment for the core infrastructure sector.
Principal Competitors
The main competitors are Jindal Power Ltd, GMR Energy Ltd, GVK Energy Ltd,
Lanco Power Ltd, Adani Power Ltd. The technology adapted by Reliance Power
of procuring the power equipments from China is followed by above
mentioned competitors. So along with Reliance Power, these are strong
competitors in the Indian Power sector market.
Recent Developments in Power Sector
Efficient infrastructure is a pre-requisite for sustainable andinclusive economic
growth and it holds the key to globalcompetitiveness of the Indian economy.
The direct correlation between electricity and economic growth is
widelyacknowledged. India needs power to grow and for that reasonthe sector
presents a massive opportunity.The private sector has underscored its central
role in sustainingpower sector investments, with over 50 per cent of the
capacityaddition in the 11th five-year plan by the private sector. TheElectricity
Reforms which started in the 1990s, and took greatershape with the Electricity
Act 2003, have been able to attractprivate independent power producers and
accelerated capacityaddition. However, the biggest challenge facing the
power sectoris fuel availability and pricing. This requires immediate
attentionof the government and there are clear indications that the
administration is seized of the matter. The other area of hugeconcern for the
power sector is distribution reforms, which arecritical for the sector to gather

5
and maintain growth momentum.Again, there is growing realization in the
government thatdistribution reforms cannot be delayed any further. The Govt.
has recommended pragmatic ways ofreviving electricity distribution
Companies by passing the onus ofrepaying loans to respective state
governments, instructing thestates to ramp up transmission and distribution
efficiency and foran allotment of distribution areas on a franchisee basis.

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