3QFY18 Result Update February 05, 2018 CMP* (Rs) 166 Market Cap. (Rs bn) 1,361 Free Float (%) 37.7 Shares O/S (mn) 8,245 Wage Provisioning, Lower in Plant Availability Impede Earnings Growth has delivered a weak performance in 3QFY18. Its reported PAT declined by 4.4% YoY to Rs23.6bn owing to: (1) wage provision to the tune of Rs4.5bn; and (2) lower plant availability at 83% (vs. 91.5% in 3QFY17) leading to disincentive of Rs4bn on account of shortage of coal at Mauda, Kudgi, Solapur. Looking ahead, we expect s business to improve further backed by higher capacity commercialisation, better fuel availability and likely improvement in demand owing to UDAY scheme. Rolling over our estimates to FY20E, we maintain our recommendation on the stock with a revised Target Price of Rs213 (from Rs192 earlier). Higher Revenue on Higher Generation Despite 4.0% YoY decline in average realisation to Rs3.2/unit, s net sales grew by 7.1% YoY to Rs207bn aided by 10.7% YoY rise in generation to 63.3bn units. PLF stood at 76.9% for coalbased plants and 29.9% for gas-based plants in 3QFY18, which were flat on YoY comparison. Commercialisation of 1.1GW during the quarter helped increase in regulated equity to Rs505bn. PLF incentive for the quarter stood at Rs300mn. Reported PAT down 4.4% YoY on Wage Provisioning & Lower PAF s fuel cost declined by 7.2% YoY to Rs1.9/kWh led by lower tax incidence on account of GST and decline in coal prices on account of re-grading of coal supplies. Notably, increase in interest and depreciation charge can be attributed to commercialisation of 1.1GW of assets during the quarter. Its reported PAT declined by 4.4% YoY to Rs23.6bn mainly owing to wage provisioning to the tune of Rs4.5bn (including Rs2.4bn in accelerated leave encashment offset by Rs5.6bn gain on reversal of prior-period tax and lower plant availability PAF for coal was 83% leading to disincentives of Rs4bn on account of shortage of coal at Mauda, Solapur and Kudgi. The Management remains confident of adding 4-5GW of capacity in FY19 with a capex of Rs220bn. Kudgi (800MW) and Bongaigaon (250MW) were commercialised in 3QFY18. It expects to commission 1.6GW capacity Kudgi-U3 800MW and Lara-U1 800MW and 660MW in Meja JV in 4QFY18. Outlook & Valuation Looking ahead, we expect to add commercial capacity of 5GW and 6GW in FY19E and FY20E, respectively which would lead to a significant jump in regulated equity from the current level of Rs505bn.We continue to consider as one of the best placed companies in terms of fuel security, as most of its capacity off-take will continue to be through long-term Power Purchase Agreements (PPAs). At CMP, the stock trades at P/B of 1.0x & P/E 10.1x based on FY20E, which is attractive in our view. We believe that capacity addition track record, assured RoE, robust balance-sheet and strong operational cash-flows continue to augur well for. Rolling over our estimates to FY20E, we maintain our recommendation on the stock with a revised Target Price of Rs213 (from Rs192 earlier). Share price (%) 1 mth 3 mth 12 mth Absolute performance (6.7) (8.7) (3.5) Relative to Nifty (9.7) (11.6) (26.2) Shareholding Pattern (%) Sep 17 Dec'17 Promoter 63.0 62.3 Public 37.0 37.7 1 Year Stock Price Performance 190 185 180 175 170 165 160 155 150 Feb-17 Mar-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Jan-18 Note: * CMP as on Feb. 02, 2018 Key Financials (Rs mn) FY17 FY18E FY19E FY20E Net Sales 786,853 859,989 992,101 1,119,398 Op. Profits 216,957 226,093 273,961 319,340 OPM (%) 27.6 26.3 28.5 28.5 Net Profit 90,491 96,646 114,544 135,963 YoY Gr. (%) (11.7) 6.8 18.5 18.7 EPS (Rs) 11.4 11.7 13.9 16.5 RoE (%) 9.8 9.6 10.3 11.0 ROCE (%) 8.6 7.6 8.5 9.2 EV/EBIDTA (x) 10.9 11.0 9.6 8.4 PE (x) 15.1 14.2 11.9 10.1 P/B (x) 1.4 1.3 1.2 1.0 Source: Company, RSec Research Research Analyst: Rupesh Sankhe Contact: (022) 3320 1606 Email: rupesh.sankhe@relianceada.com 1
Risks to the View ff ff Any significant delay in project execution. Lower coal availability. Exhibit 1: Quarterly Performance (Rs mn) 3QFY18 3QFY17 YoY (%) 2QFY18 QoQ (%) 9HFY18 9HFY17 YoY (%) Net Sales 207,744 193,959 7.1 196,988 5.5 603,524 578,568 4.3 Operating Costs 154,974 141,440 9.6 142,585 8.7 445,951 420,353 6.1 EBIDTA 52,770 52,519 0.5 54,402 (3.0) 157,573 158,215 (0.4) EBIDTA Margin (%) 25.4 27.1 (1.7) 27.6 26.1 27.3 Other Income 3,135 2,502 25.3 2,616 19.8 12,377 5,987 106.7 Interest 10,650 9,090 17.2 9,195 15.8 28801 26993 6.7 Depreciation 18,814 14,853 26.7 17,127 9.8 51,641 43,147 19.7 Profit Before Tax 26,441 31,077 (14.9) 30,697 (13.9) 89,509 94,063 (4.8) Tax 2,240 6,133 (63.5) 7,842 (71.4) 18,554 20,741 Tax Rate (%) 8.5 19.7 25.5 20.7 22.1 Regulatory expenses (593.1) (252.0) - 1530.80-3220.4 (263.2) - Adj. PAT 23,608 24,693 (4.4) 24,386 (3.2) 74,176 73,059 1.5 Source: Company, RSec Research 2
Profit & Loss Statement (Rs mn) FY17 FY18E FY19E FY20E Revenues 786,853 859,989 992,101 1,119,398 Growth (%) 11.6 9.3 15.4 12.8 Operating Profit 216,957 226,093 273,961 319,340 Other Income 6,570 2,628 2,812 3,009 EBIDTA 223,526 228,721 276,772 322,349 Growth (%) 19.4 2.3 21.0 16.5 Depreciation & Amortisation 59,208 67,577 78,158 84,999 EBIT 164,318 161,143 198,614 237,349 Interest Charges (Net) 35,972 38,807 51,763 56,065 PBT (Before E/o items) 128,346 122,336 146,851 181,284 Tax provision 30,026 25,690 32,307 45,321 Minority interest 7,830 - - - Pre-exceptional PAT 90,491 96,646 114,544 135,963 Extra-ordinary items 3,357 - - - Net Profit 93,848 96,646 114,544 135,963 Growth (%) (8.4) 3.0 18.5 18.7 EPS (Rs) 11.4 11.7 13.9 16.5 Balance Sheet BALANCE SHEET FY17 FY18E FY19E FY20E Equity Share Capital 82,455 82,455 82,455 82,455 Reserves & Surplus 879,858 976,504 1,091,047 1,227,011 Shareholders' Funds 962,313 1,058,959 1,173,502 1,309,466 Total Debt 1,025,870 1,155,719 1,280,361 1,344,714 Deferred Tax liability 15,600 15,600 15,600 15,600 Capital Employed 2,003,783 2,230,278 2,469,464 2,669,780 Fixed Assets 1,800,927 2,028,917 2,250,759 2,385,759 Cash & cash eq. 29,304 26,506 32,359 23,338 Net current assets 84,027 91,923 88,910 100,361 Investments 89,524 82,932 97,436 160,322 Total Assets 2,003,783 2,230,278 2,469,464 2,669,780 3
Cash Flow Statement Y/E Mar (Rs mn) FY17 FY18E FY19E FY20E Pre-tax profit 128,346 122,336 146,851 181,284 Depreciation 59,208 67,577 78,158 84,999 Total tax paid (30,026) (25,690) (32,307) (45,321) Chg in working capital 21,746 (7,895) 3,013 (11,451) Other items (4,472) - - - Cash from oper. (a) 174,802 156,328 195,715 209,512 Capital expenditure (279,501) (295,567) (300,000) (220,000) Chg in investments (6,592) 6,592 (14,505) (62,886) Cash from inv. (b) (286,094) (288,975) (314,505) (282,886) Free cash flow (a+b) (111,291) (132,647) (118,789) (73,374) Cash from fin. (c) 96,531 129,849 124,643 64,352 Net chg in cash (a+b+c) (14,760) (2,798) 5,853 (9,022) Closing Cash balance 29,304 26,506 32,359 23,338 Key Ratios Y/E Mar FY17 FY18E FY19E FY20E OPM (%) 27.6 26.3 27.6 28.5 Net Margin (%) 11.5 11.2 11.5 12.1 Dividend Yield (%) 1.6 1.6 1.9 2.3 Net Debt/Equity (x) 1.0 1.1 1.1 1.0 ROACE (%) 8.6 7.6 8.5 9.2 ROANW (%) 9.8 9.6 10.3 11.0 EV/Sales (x) 3.0 2.9 2.6 2.4 EV/EBIDTA (x) 10.9 11.0 9.6 8.4 PE x) 15.1 14.2 11.9 10.1 P/B (x) 1.4 1.3 1.2 1.0 4
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