Buy Reliance Power Ltd

CMP: Rs.106.20, 

Target: Rs.135-160

Time: 2 to 6 months

Reliance Power, a part of Reliance Group has the largest portfolio of power projects in the private sector based on coal, gas, hydro and renewable energy, with an operating portfolio of 1540 megawatts. 

Reliance Power Ltd is a huge company and according to Wikipedia: "Along with its subsidiaries, it is presently developing 13 medium and large-sized power projects with a combined planned installed capacity of 33,480 MW". 

Moreover, another point which many might have over looked is that: Reliance Natural Resources was merged with Reliance Power in 2010, shortly after its initial public offering---so it is basically two companies merged into one company. So, doesn't it look attractive at the CMP of Rs.106.20. 

If you remember the upper cut off price for the bid in its IPO (Indian Public Offering) was Rs. 450. You are getting the same share after more than  4 years at almost 1/4th (One fourth), the IPO price. Isn't it an amazing offer..??!!

According to Wikipedia: "On January 15, 2008, the company attracted $27.5 billion of bids on the first day of its initial public offering (IPO), equivalent to 10.5 times the stock on offer, thereby, creating India's IPO record. The upper cut off price for the bid was Rs.450. The proposed IPO was to fund the development of its six power projects across the country whose completion dates are scheduled from December 2009 to March 2014". 

Besides this, after being hit by many negatives in the last few years, there seem to be emerging some positives for the power sector. 
Recently a tariff hike was implemented in states like West Bengal, Tamil Nadu, Delhi, etc and it is believed that a few other states will also follow suit. The PMO’s office, coal ministry and the power ministry also seem to be very serious about resolving the power crisis situation in the country. And although coal production has not shown any overnight increase, the government has asked the coal ministry to de-allocate the private sector coal blocks and give them to Coal India. Besides, it has asked Coal India to appoint mine developers and operators (MDOs) in order to expedite coal production from these mines. On the international front the coal prices have cooled off. The demand for coal has declined a bit, as reflected in the coal prices. The Indonesian coal reference price in the last one year has come down by 14%. And  and there is mixed opinion about whether the coal prices will down any further from here on. The cooling of the international coal prices looks good for the Indian power sector which has some of the companies importing coal from Indonesia.

Also, the coal prices in other countries such as Australia, South Africa, etc have also shown a significant decline. The fall in the coal prices can be attributed to the over-supply situation created due to the availability of cheap natural gas. The U.S. has been replacing coal with cheap natural gas. Besides, the fall in industrial activity in many countries has also helped the coal prices show correction of between 20-30% in one year’s time. The slowdown in the Chinese economy has resulted in lower coal consumption and thus the Indonesian coal prices have shown a decline.

The situation should look good for sectors dependent on coal, such as power, steel and cement, especially in the view of rupee appreciating sharply against the USD in the last few days. Therefore, there would be good impact on the profits of the companies in the power sector, due to cooling off of the international coal prices. Therefore, buy the scrip of Reliance Power Ltd, like a bank Fixed Deposit and keep holding. I am expecting the scrip to cross Rs.135, within the next couple of months time frame. Today, the scrip closed at Rs.106.20.