SELL Reliance Power – Glodman Sachs

In a daring report published by Goldman Analyst has come forward and still recommnds a SELL on Reliance Power. Goldman believes financial risk has been mitigated to some extent, we think risks relating to fuel, land and offtake of output still exist for several RPWR key projects. Retain Sell with 22% potential downside, as valuations do not reflect risks for its key projects, in our view.

No visibility on time frame and pricing of coal supplies from its mines in Indonesia. Chitrangi (3.9GW): The acquisition of land is still not complete and the off-take is not tied up. Dadri and Shahapur (10.3GW): Progress on these projects hinges on the resolution of the court dispute between RIL and RNRL.

With just 3.1% ROE for FY11E, the stock is trading at 2.7X FY11E P/B, vs. peers’ 2.5X but average ROE of 13%. Note that we lower FY10E-12E EPS by 1%-6% on higher minimum alternate tax of 16% vs. 11% previously.

Goldman Sachs has set a 12 month target price on Reliance Power at Rs 128, 22% potential downside to current market price.

Our Recommendation:
Don’t short or SELL, if in Loss. Avoid Fresh Exposure. There is a whisper on the street that as soon as the Gas row between ADAG and RIL is settled, Reliance Power is all set to Zoom, but its medium term in their horizon.