RELIANCE POWER currently holds one of the largest portfolios of power generation projects under development in India – over 13 projects with an aggregate capacity of over 28000 MW currently under development stage with an estimated cost of the projects above Rs 95,000 crores approx.
The company currently has no power plants in operation or other revenue-generating operations and has no noteworthy operating history from which one can evaluate its business and future prospects and viability.
Moreover projects under development have a long gestation period. Cash flows and business profits are anticipated only from FY 2010-11. The real money will start flowing only when RPL brings on line its first ultra mega project at Sasan. As per the agreement with the government, the first unit of the Sasan project will be commissioned by mid-2013; it will not be before April 2016 that the entire 3,960 MW will be on stream.
At the end of Q3 2008 Reliance Power had cash balance of Rs 8,877. Going forward, in order to finance its power projects Reliance power would require over Rs 87,000 crores in the form of debt and equity investment. Looking at tough economic condition in India and international credit markets, it may significantly impact the raising debt plans and the overall cost of funds.
Moreover, even with 2:1 debt equity ratio would require an equity contribution of more than Rs 29,000 crores, which will be difficult to raise from the market as the company is not expecting major cashflow before mid-2013.
The stock of Reliance Power is currently trading at around Rs 100 which is down over 65 per cent from its 52 week high of Rs 310. The retail investors have already lost over Rs 6,000 crores within one year and would not like to invest in the future IPO. The capital raising plans of the Anil Ambani can come as cropper as past issue where the investors have lost will weigh heavily on its capital raising plans. Moreover, there is no major institutional investor in the company apart from Natixis, which holds 1.22 per cent of the total equity. This also implies that Institutional investors are not interested in Reliance Power.
The completion goals for the projects are estimates and hence subject to risks. The failure to complete projects within the planned period and in accordance with agreed specifications may result in higher costs, lower returns on capital or reduced earnings.