Is Reliance Power a dead Stock? 😓 Rpower में निवेश करना चाहिए या नहीं?

      1. Company & Business Strength: 5/10

Reliance Power Limited is a part of the Reliance Group, one of India’s largest business houses. Reliance Power was established to develop, construct and operate power projects both in India as well as internationally. 

The company was incorporated on 17 January 1995 as Bawana Power Private Limited and changed to Reliance Power Limited in 2007.

The Company on its own and through its subsidiaries has a large portfolio of power generation capacity, both in operation as well as capacity under development. The company has close to 6000 MW of operational power generation assets.

The projects under development include three coal-fired projects to be fuelled by reserves from captive mines and supplies from India and elsewhere; 1 gas-fired project; and 12 hydroelectric projects, 6 of them in Arunachal Pradesh, 5in Himachal Pradesh and 1 in Uttarakhand. 

Reliance Power's project portfolio also includes the 3,960 MW Sassan Ultra Mega Power Project (Madhya Pradesh). UMPPs are a significant part of the Indian government's initiative to collaborate with power generation companies to set up 4,000 MW projects to ease the country’s power deficit situation.

Business Segment:

They have a portfolio of various Power generation projects such as traditional coal, and gas shelved to future Projects in the renewable energy sector.

Coal-Based Thermal Power Projects:

It is the world's largest integrated power generation and coal mining project and is Reliance Power's flagship project.

The project comprises six units of 660 MW each. The Sasan UMPP will provide reliable and low-cost power for 25 years to more than 42 crore people in seven Indian states.

The Rosa project represents the largest private sector investment in UP and is the first new thermal power plant in the state in 20 years.

The Butibori plant comprises two 300 MW units of coal-based power near Nagpur in Maharashtra. The plant is supplying entire power to Mumbai residents through Reliance's distribution company in Mumbai.

Gas-based Thermal Power Project:

Reliance Power has executed Project Agreements with Bangladesh Power Development Board (BPDB) for Phase – I of a 750 MW LNG-based combined cycle power project at Meghnaghat, near Dhaka.  

The project will give a tremendous boost to the economic and industrial growth of Bangladesh and help to enhance energy security with clean, green, and reliable LNG-based power.

Solar Power Projects:

It generates more than 70 million kilowatt hours of clean and green energy annually. The 40 MW solar project is the first plant in the series of solar energy projects to be set up by the company.

Wind Power Projects:

The 45 MW Wind power project at Vashpet was the first time wind power project in the history of the Indian wind power industry to use a 2.5 MW capacity turbine which was successfully put into operation in Sangli.

Hydroelectricity Projects:

Different hydroelectricity projects in Arunachal Pradesh, Himachal Pradesh, and Uttarakhand.

Renewable Energy:

We at Reliance Power believe that enhanced use of natural and renewable energy sources is needed to help take the burden off our current dependency on fossil fuels. 

Power generation from renewable energy sources is increasingly becoming important all over the world as we strive to mitigate greenhouse gases and climate change issues important for our survival on Planet Earth.

We have a diversified portfolio of power projects in which green energy generation has an important share.

2. Competitive Strength: 2/10

Reliance Power is an Indian company in Power generation & Distribution Services, it has competitors like Adani Green, Adani Transmission, Power Grid, Tata Power, NTPC, JSW Energy, Adani Power, and others.

3. Stock Analysis Return & PE Ratio: 2/10

Reliance Power Stock is listed both in NSE, and BSE and currently trading around 15 (Jan 2022), with 52 highs of 18s and a low of 3s.

It has a market cap of 5000+ which is Small cap, Reliance Power used to be one of the leading companies in this Power sector space during late 2000, Stock was listed in 2008 with a massive IPO and subscribed multiple times creating India's IPO record, RPower IPO bid was for Rs 450. On the day of listing stock plunged and investors lost over 17% on day 1. This is one of the stocks which never recovered to IPO price till now and is a wealth destroyer to date. 

The stock has given a 3-year CAGR of -17% which is poor. 

The face value is 10, so expect Split, bonus, and buybacks. But note here this stock is a Loss making company after 2019 with a small profit in 2021. So unless profitable and have good growth, neither of them seems to be not considered.

PE Ratio: RPower has a PE of 0 ( Negative) currently which means no earning and a loss-making company. 

4. Dividend: 1/10

The stock has been giving no dividend (0.0%).

Generally, we expect a growing company to give atleast 1% dividend which is a good gesture and sign unless high Capex is planned.

Financial Ratios:

5. Sales Growth/Revenue: 3/10

The Sales growth indicates that the company can capture the market, which may increase profitability too. 

RPower has a 3-year median Sales growth of -6.13%  which is poor. Current year (2021) growth stands at -4.92%. For Small caps, we consider the growth of atleast 20%+ as healthy sales. 

6. Profit Growth: 4/10

Sales growth indicates a good income, but unless profit is not made it's terrible. Profit growth indicates how expenses are managed or also how the company has pushed the raw material price to end customers.

RPower Profit growth stands at a 3-year median of -18.56% which is poor, Current year stands at 110.63%. For a Small cap, atleast 20% is considered healthy growth in Profitability.

7. [ROE] & [ROCE] %: 3/10

Return on Equity:

ROE indicates the ability to generate profits from shareholders/Equity Investments. RPower ROE has a 3-year median of -13.57%.  The current year stands at 3.76%. 

We consider a healthy ROE to be atleast 20% for growth companies.

Return on Capital Employed:

ROCE indicates the ability to use its capital employed for business. RPower ROCE has a 3-year median of -1.82%.  The current year stands at -7.59%. 

We consider a healthy ROCE to be atleast 20% for growth companies.

8. Debt/Equity: 2/10

D/E is a measure of which a company is running through debts vs owned funds. Ideally, D/E should be less than 1, which indicates stability. 

RPower has a D/E of 2.09 which is bad. Unless capital expansion or any other is required, a low debt is always good to maintain profitability.

We consider debt-free or D/E<0.1 to be healthy. 

9. Shareholding %: 5/10

The company has a high Promotor holding of 24.98%. The FII and DII of  4.92% and 3.51% indicate Institutions have less holding. The remaining are Public which includes public companies like HDFC, LIC, etc.

Note: The Promoter Pledging % is 4.89% which is fine, generally no pledging indicates a good sign.

The other indicator like interest coverage ratio, Return on Assets[ROA], and others also seems fair too.

10. Future Prospects: 2/10

Pros:

No such pros as of now. It has never been a profitable company since 2010. 

Cons:

Very High Debt with D/E greater than 3.

Very less promotor shareholding and 100% pledged too. Also, the shareholding has been taken by DIIs for debt restructuring.

Poor Financials like Revenue, profit, ROE, ROCE, Reserves, and a loss-making company.

Investment Hacks Score Card: 

The average Score of Reliance Power Ltd based on all factors comes to be 2.9/10.

Conclusion:

Overall Reliance Power Ltd was one of the leading companies to be benefited from the telecom boom before 2010, but after 2010 it has never been profitable, and also debt has been increasing to the range of pledging and banks acquiring shares.

 The stock has been a wealth destroyer until now after 2010. 

The Future cannot be said but unless they become debt free or if the company is funded/acquired by another company in the future or be a major role in 5G infrastructure it can be a game changer only then.

Since this is a penny stock, high volatility can be seen in upper and lower circuits unless a major change happens in fundamentals.

Disclaimer:

Since this is an educational opinion, Please research thoroughly or consult your financial advisor before Investment.

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Team Investment Hacks