Emkay calls a ‘Buy’ on Reliance Power
CMP: Rs. 93 Target Rs. 155
4Q12 reported PAT of Rs 2.3bn, in line with our estimates at PAT level; Other income reported below expectations but impact was offset by negative tax provisioning. (1) Rosa fully commissioned, (2) Sasan mine production in 2Q13, (3) Butibori unit#1 in Jun’12, (4) JORC study completed for Indo mines & (5) boiler hydro test done for Sasan unit#1. Building strength - (1) huge cheap captive coal, (2) merchant capacity in captive coal plants only, (3) plants near load centers, (4) minimizing cost of capital & (5) low to reasonable tariffs-offtake and payment risk minimized. Solidity & positive triggers ignored with stock at 40% discount to fair value. Foresee RPWR as most sustainable private power utility; Reiterate ‘Buy’ with TP of Rs155/Share
In line with estimates: 4Q12 reported PAT of Rs2.31bn is in line with our estimates of Rs2.26bn. Rosa has performed broadly as expected. Gross generation was 1.1BU for 4Q12 and 4.3BU for FY12.
Fine tuning of FY13E and Introduce FY14E: We have done fine tuning of our FY13E earnings estimates to align it with FY12 actual performance and projects update. Our revised FY13E earnings stand at Rs3.4/unit against earlier estimate of Rs3.7/unit. We introduce FY14E earnings at Rs3.9/unit.
Building strength, project execution on track: We reiterate our confidence in company’s well planned business approach which is gradually building strength–owns huge reserves of cheaper coal, setting up plants near load centers, merchant exposure in captive coal based plants only and low to reasonable tariffs for long term PPAs which minimizes off-take and payment risk. Under-construction projects are going as per or ahead of schedule. We expect Butibori to fully commission in FY13 and Sasan by FY15.
Commissioning triggers ahead, reiterate Buy: Entire 1200MW at Rosa is fully commissioned now. Unit#1 at Butibori will commission in Jun’12 while the boiler hydro test is completed for Sasan’s unit#1. Coal production from Sasan mines is also expected to start in 2Q13 with gradual ramp-up as per Sasan power plant commissioning. Stock has corrected 22% in last three months despite recent positive events like EGoM’s final approval for excess coal from Sasan and FSA for Rosa. It is currently trading at 1.3x FY13E book. In our view, various positive triggers are being ignored at current market price as stock is trading at more than 40% discount to its risk adjusted fair value. We foresee RPWR as most sustainable private power utility. We reiterate buy with the price target of Rs 155.
Centrum calls a ‘Buy’ on BPCL
CMP: Rs. 700 Target Rs. 861
Full compensation for under-recoveries incurred in FY12 by the government (~60%) and the upstream (~40%) aided BPCL’s profitability. Devoid of any absorption on regulated fuels (although it incurred losses on sale of petrol which were absorbed), BPCL reported PAT of Rs13.1bn for FY12. BPCL’s E&P initiative is yielding results with incremental discoveries of hydrocarbon in its Mozambique block. We believe the E&P story is likely to drive stock performance going ahead.
We remain positive on regulated fuel price hike and BPCL’s successful E&P initiative and hence maintain Buy on the stock.
Higher petroleum product prices lead to higher revenues: BPCL‘s revenues climbed up by 42.8% YoY and 9.9% QoQ at Rs 646.7bn owing to higher product prices and slightly higher volumes. Sales of petroleum products jumped by 6.1% YoY and 2.4% QoQ at 8.2mmt.
Better GRMs, full compensation by the government and upstream lead to profits in both Q4 and FY12: GRMs improved on a QoQ basis and came in at US$4.2/bbl in Q4 against US$3.5/bbl in Q3 which somewhat supported the performance. Due to higher quantum of under-recoveries during FY12, entire under-recoveries were compensated by the government and the upstream without any absorption left for downstream. Due to this, BPCL was able to show profits for both Q4 and FY12. Although, BPCL did not absorb any loss on regulated fuel, it did absorb losses on petrol (deregulated fuel) which was not compensated. BPCL received Rs129.6bn in subsidies from upstream companies and Rs196.7bn compensation from the government for FY12. Thus the company reported PAT of Rs39.6bn for Q4 and Rs13.1bn for FY12.
Bina to report double digit GRMs, focus on E&P: BPCL’s Bina refinery operated at about 55-60% utilisation rate during Q4 but is currently operated at about 90% and soon will reach its full capacity. With expectation of US$9-11/bbl GRMs, Bina is likely to add to BPCL’s consolidated earnings. BPCL is likely to invest over Rs 45-50bn during FY13E of which about Rs 15-16bn will be invested in E&P. Reserve estimate for Mozambique block is expected by the end of 2013. We believe higher capacity utilisation of Bina and further positive news flows from E&P are likely to drive BPCL’s stock performance going ahead. We like BPCL due to its exposure in E&P and maintain Buy with a price target of Rs 861.