Reliance Power is making headlines once again. This necessitates Reliance Power fundamental analysis. The last time it dominated the media, the company was grappling with substantial financial difficulties, including insolvency proceedings initiated against its subsidiaries. A notable instance was Vidarbha Industries Power Ltd., a subsidiary of Reliance Power, which faced an insolvency petition from Axis Bank for a claim of approximately ₹553 crore
However, in the past week, the narrative has shifted dramatically. Articles like “Why is Anil Ambani-owned Reliance Power share price skyrocketing?” from Livemint and “Reliance Power shares zoom 26% in 3 days” from Business Today highlight a remarkable turnaround. This sudden surge in share price is creating a FOMO among all of us.
Given this buzz, I decided to conduct a Reliance Power Fundamental Analysis to ensure an informed decision. Let’s delve into the discussion, examining all the facts and figures about the company to understand its potential prospects.
About the company- Reliance Power Fundamental Analysis
Reliance Power is dedicated to building and running power projects in India and abroad. The company, along with its subsidiaries, has a significant portfolio of both operational and developing power generation assets.
Operational Capacity– Reliance Power operates nearly 6000 MW of power generation assets.
Projects Under Development– The company is currently developing several projects:
-Coal-Fired Projects: Three projects using coal from captive mines and other sources.
-Gas-Fired Project: One gas-powered project.
-Hydroelectric Projects: Twelve projects, including six in Arunachal Pradesh, five in Himachal Pradesh, and one in Uttarakhand.
Sasan Ultra Mega Power Project– Reliance Power’s portfolio includes the 3,960 MW Sasan Ultra Mega Power Project in Madhya Pradesh. These Ultra Mega Power Projects (UMPPs) are a key part of the Indian government’s strategy to work with power companies to set up 4,000 MW projects, helping to reduce the country’s power shortage.
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Stock Overview and SWOT Analysis
Daily News
What the buzz is all about?
The share price of Anil Ambani-owned Reliance Power has experienced a dramatic surge recently, capturing significant attention in the financial markets. Headlines from Livemint highlight the intrigue: “Why is Anil Ambani-owned Reliance Power share price skyrocketing?” Meanwhile, Business Today reports, “Reliance Power shares zoom 26% in 3 days as the company turns ‘debt-free on a standalone basis’.”
The company witnessed a sharp surge in its share price during Wednesday’s June 13, 2024 intraday trade. Share prices soared by 10% to hit the upper circuit limit of Rs 31.53. This rise caps off a remarkable 28% increase over just five trading sessions. Year-to-date, the stock has soared by 31.69%, nearly doubling its value over the past year. But What is driving this sudden bullish sentiment?
Achieving Debt-Free Status
The latest buzz around Reliance Power stems from its achievement of becoming debt-free on a standalone basis. Recent reports, citing sources from PTI, confirm that the company successfully settled its outstanding debt of approximately Rs 800 crore with various banks. This milestone follows a series of debt settlement agreements signed between December 2023 and March 2024 with key banks like IDBI Bank, ICICI Bank, Axis Bank, and DBS (Business Standard).
In a disclosure to the stock exchange, Reliance Power detailed the settlement of a total debt amounting to Rs 1,023 crore. This includes debts owed by its subsidiaries Kalai Power and Reliance Cleangen to Reliance Commercial Finance Ltd (RCFL). (The Economic Times)
Strategic Asset Sales Facilitate Reliance Power’s Debt Reduction Efforts
To bolster its debt repayment efforts, Reliance Power strategically divested assets. In December 2023, Reliance Power transferred the development rights of its planned 1,200 Megawatt hydro-electric project in Arunachal Pradesh to THDC India Ltd for Rs 128 crore. Additionally, in March 2024, the company sold its 45 MW wind energy project in Vashpet, Maharashtra to JSW Renewable Energy for Rs 132 crore. (The Economic Times)
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Essentials & Financials- Reliance Power Fundamental Analysis
Market Capitalization
–Mid-Cap Stock: The company has a market capitalization of ₹12,075 Crores.
As a mid-cap stock, Reliance Power offers a balance between growth potential and stability but may be more volatile than large-cap stocks.
Profitability Ratios
–Return on Equity (ROE): -19.0%
–Return on Capital Employed (ROCE): 1.43%
Poor profitability ratios indicate inefficient use of equity and capital, raising concerns about future performance.
Price to Earnings Ratio (P/E)
–P/E Ratio: -5.83 (negative)
A negative P/E ratio suggests the company is not currently profitable, which is a red flag for market enthusiasts.
Earnings Per Share (EPS)
–Trailing Twelve Months (TTM) EPS: ₹-5.15 per share
–Trend: Consistently declining for the past 3 years
A declining EPS signals deteriorating earnings and poor financial health.
Debt to Equity Ratio
–Debt to Equity Ratio: 1.62
A ratio higher than 1 indicates that the company relies heavily on debt to finance its assets, which can be risky and may lead to financial instability.
Dividend Yield
–Current Year Dividend: ₹0
–Dividend Yield: 0%
The absence of dividends suggests that the company is not generating sufficient profit to reward shareholders, making it less attractive to income-focused investors.
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Reliance Power shows concerning signs with poor profitability, negative earnings, high debt reliance, and no dividend yield, making it a risky choice currently.
Shareholding Pattern (March 2024): Reliance Power Fundamental Analysis
| Shareholders | Mar 2018 | Mar 2019 | Mar 2020 | Mar 2021 | Mar 2022 | Mar 2023 | June 2023 | Sep 2023 | Dec 2023 | Mar 2024 |
| Promoters + | 75.00% | 56.29% | 19.29% | 9.06% | 24.98% | 24.99% | 24.99% | 24.50% | 24.50% | 23.24% |
| FIIs + | 4.24% | 7.25% | 5.22% | 2.15% | 5.95% | 7.35% | 7.34% | 7.66% | 8.37% | 13.01% |
| DIIs + | 6.67% | 6.67% | 7.01% | 4.25% | 3.50% | 3.17% | 3.17% | 5.16% | 5.19% | 4.94% |
| Government + | 0.01% | 0.01% | 0.01% | 0.01% | 0.01% | 0.01% | 0.01% | 0.01% | 0.01% | 0.00% |
| Public + | 14.08% | 29.78% | 68.47% | 84.52% | 65.57% | 64.47% | 64.49% | 62.67% | 61.95% | 58.81% |
| No. of Shareholders | 31,97,614 | 31,04,750 | 30,96,881 | 31,30,552 | 35,74,309 | 32,19,432 | 30,45,992 | 31,06,446 | 35,67,059 | 38,68,227 |
Promoter Holdings Change– In the March 2024 quarter, the promoters of Reliance Power decreased their holdings from 24.49% to 23.24%. This represents a reduction of 1.25% in their ownership stake. Importantly, there was no change in the amount of shares pledged by the promoters during this period.
Implication: A decrease in promoter holdings can indicate reduced confidence or strategic realignment by key stakeholders in the company’s future prospects.
FII/FPI Holdings Change– During the same quarter, Foreign Institutional Investors (FII/FPI) increased their holdings in Reliance Power from 8.37% to 13.01%. This marks a significant rise of 4.64% in their ownership of the company’s shares.
Implication: An increase in FII/FPI holdings suggests growing interest and confidence from international institutional investors in Reliance Power’s potential and performance.
Mutual Funds Holdings Change– Mutual Funds also saw a slight increase in their holdings. It rose from 0.19% to 0.20% in the March 2024 quarter, indicating a marginal increase of 0.01%.
Implication: Although modest, this increase suggests that mutual funds are cautiously optimistic about Reliance Power’s prospects, albeit with a relatively small stake.
Institutional Investors Holdings Change– Institutional Investors collectively raised their holdings in Reliance Power from 13.58% to 17.97% during the March 2024 quarter. Thus marking a substantial increase of 4.39%.
Implication: The significant increase in institutional investor holdings signifies growing institutional confidence and a potentially positive outlook on the company’s future performance and strategic direction.
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The recent changes in ownership indicate mixed sentiments among stakeholders. Reliance Power saw a decrease in promoter holdings while institutional and foreign investors showed increased confidence in the company’s prospects.
Evaluating Financial Statements
The fundamentals of Reliance Power are not particularly impressive. Let’s examine the company’s financial statements to analyze its profit and loss records over the years, assessing whether it has been successful in increasing its revenue and profits.Profit & Loss | Income Statements
Profit & Loss | Income Statements
Revenue from Sales:
-In the last 5 years (March 2020- March 2024): Revenue Increased from ₹ 7,562 crores to ₹ 7,893 crores (a rise of approximately 4.38% over the last 5 years).
Operating Profit:
-In the last 5 years (March 2020- March 2024): Declined from ₹ 3,010 crores to ₹ 1,157 crores (a decline by approximately 61.53% over the last 5 years).
Net Profit:
-In the last 3 years (March 2022- March 2024): Net Profit declined from ₹ -915 crores to ₹ -2,068 crores (a decline of approximately 126.01% over the last 3 years).
This indicates a substantial worsening of financial performance where the company’s losses have increased significantly.
EPS:
-In the last 3 years (March 2022- March 2024): EPS decreased from ₹ -2.84 per share to ₹ -5.15 per share (a decrease of approximately 81.34% over the last 3 years).
The sharp decline in EPS indicates a significant deterioration in the company’s earnings per share, suggesting poor financial performance and potentially lower investor confidence.
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Cash Flows Statements
Cash flow statements help assess a company’s liquidity, operational efficiency, and financial health by detailing cash flows from operating, investing, and financing activities. This analysis guides decisions on investment suitability and risk management. Understanding cash flow statements benefits market analysts as it provides clarity on a company’s financial robustness. This helps gauge its ability to meet short-term obligations, fund growth, and manage risks effectively. This insight informs investment decisions that align with financial goals and risk tolerance.
Cash flows from operating activities: From March 2020 to March 2024, the company has recorded a decline in Cash flows. It decreased from ₹ 4,543 crores in March 2020 to ₹ 3,174 crores in March 2024.
This could indicate challenges in profitability, efficiency, or changes in the business environment affecting revenue and expenses. It could be a potential indicator of financial stress or operational difficulties within the company.
Net cash flow: Net cash flow has shown fluctuation over the past 5 years. It declined from ₹ 96 crores in March 2020 to ₹ 19 crores in March 2021. However, it improved to ₹ 248 crores by March 2024.
The fluctuation in net cash flow over the past 5 years shows inconsistency in cash generation and management at Reliance Power. However, the improvement may suggest ongoing efforts to enhance cash flow management and operational efficiency.
Comparison Between Income Statements And Cash Flows Statements.
In our Reliance Power fundamental analysis, let’s make an important comparison of operating cash flow from the Cash Flow Statement with the net income from the Income Statement. This helps evaluate earnings quality and sustainability.
Ideally, cash flows from operational activities should exceed net income, indicating strong growth potential. In March 2024, Reliance Power reported a net profit of -2,068 crores, while cash flow from operating activities stood at 3,174 crores. This highlights a substantial positive cash flow despite negative net income.
This suggests that while Reliance Power reported a significant net loss, its operational cash flow remains strong, indicating the company’s ability to generate cash from its core activities and maintain operational stability.
Important Highlights Of The Company’s Past Year Performances
Profit Growth: Reliance Power has seen negative profit growth over the past three years. The trailing twelve-month (TTM) profit growth rate stands at -62%.
Share Price Increase: Reliance Power’s share price has shown significant growth. Over the last three years, the share price has increased by 22%. In the past year alone, the share price has risen by 103%.
Return on Equity: The company’s Return on Equity (ROE) for the past 3 years stands at a negative 13%. The trailing twelve-month (TTM) ROE is at -19%. Thus indicating inefficient utilization of shareholders’ funds despite strong profitability.
Sales Growth: Reliance Power has demonstrated notable sales growth over the past three years, achieving a compounded sales growth rate of 0%. However, this growth rate has increased to 5% in the trailing twelve-month (TTM) period, reflecting recent moderation in sales expansion.
Reliance Power shows challenges in profitability and cash flow despite significant share price appreciation, highlighting the need for sustained financial improvement to bolster investor confidence.
PEER Comparison
| Company Name | Price | % Chg | MCap(Cr) | TTM PE | P/B | ROE(%) | 1 Yr Perform(%) | Net Profit(Rs.) | Net Sales(Rs.) | Debt to Equity |
| Reliance Power | 30.09 | -2.81 | 12,087.07 | - | 1.02 | -17.80 | 91.66 | -2,068 | 7,892 | 1.62 |
| NTPC | 364.95 | -1.27 | 353,879.83 | 17.01 | 2.20 | 12.95 | 96.37 | 19,696 | 178,500 | 1.46 |
| Power Grid Corp | 327.25 | -1.37 | 304,362.26 | 19.55 | 3.67 | 17.87 | 79.48 | 15,592 | 45,843 | 1.42 |
| Adani Power | 727.35 | -2.78 | 280,534.45 | 13.47 | 7.88 | 58.53 | 175.88 | 20,828 | 50,351 | 0.96 |
| Tata Power | 446.25 | -1.21 | 142,592.03 | 38.57 | 4.41 | 11.42 | 99.98 | 3,102 | 61,448 | 1.53 |
Conclusion
Reliance Power’s recent financial manoeuvres, highlighted by its successful debt resolution and strategic asset sales, have significantly boosted investor confidence. The surge in its share price evidences this. These proactive steps underscore Reliance Power’s commitment to achieving a robust financial position, positioning itself strongly in the market.
However, compared to its peers like Jaiprakash Power Ventures Ltd, Reliance Power’s fundamentals and financials are not as impressive, and the company remains a heavy loss-maker. A notable aspect is the increased participation of Foreign Institutional Investors (FIIs). Additionally, government initiatives and policies to achieve ambitious sustainable energy targets, such as the 500 GW goal by 2030, could benefit the company.
Despite these positives, my fundamental analysis of Reliance Power indicates that it is a very risky investment in the short term. A long-term perspective might be beneficial only if the company shows significant financial improvement in the coming quarters.
That’s all for today’s post. Hope you get some valuable insights from here.
Happy reading!
Disclaimer
The blog is meant for informational purposes and serves the general analysis of the stocks. The contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a while. The post does not consist of any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfil their responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.
