Why Reliance Power Share Price is Rising

With India taking a massive leap towards automation and electrification, the demand for power is expected to grow at a pace not seen before.

Within the power sector, penny stocks have emerged as intriguing investment options.

Penny stocks are low-priced shares, typically trading below Rs 100 per share or even Rs 50 per share.

This week, one power sector penny stock that made the headlines was Reliance Power.

On 20 March 2024, share price of Reliance Power was locked in the upper circuit band of 5%.

Data on BSE shows that the counter is filled with only buyers in the script, possibly indicating that the stock could continue its momentum in the next couple of trading sessions.

But will it really sustain the momentum? Reliance Power has been in the limelight for the wrong reasons all the time.

Will this time be different?

Let's find out...

Why Reliance Power Share Price is Rising in 2024

#1 Company Nearing Debt Free Status

The current rally comes after Reliance Power successfully settled its debts with three banks-ICICI Bank, Axis Bank, and DBS Bank last week.

As per an Economic Times article, quoting a senior executive from a commercial bank, Reliance Power is aiming to be a debt-free company by the end of this fiscal year.

Following this repayment, the only debt on its books will be the working capital loan from IDBI Bank.

Further, reports also stated that the three lenders collectively had about Rs 4 billion (bn) exposure to Reliance Power and have recovered close to 30-35% of their principal loans.

#2 Capital Infusion Leads to Improved Financial Performance

In the past few months, Reliance Power shares have been in demand owing to improvement in its financials and capital infusion by promoters.

In its September 2023 quarterly earnings, the company's consolidated net loss narrowed, decreasing from Rs 3.4 billion (bn) in the same period last year to Rs 2.4 bn. This shift is attributed to higher revenues.

Moreover, the trend of reducing net loss persists on a quarter-on-quarter (QoQ) basis as well, with the figure falling from Rs 3 bn.

Moreover, Reliance Commercial Finance, a wholly-owned subsidiary of Authum Investment & Infrastructure, has put forward a significant investment proposal of Rs 10.4 bn in two companies within the Anil Ambani group.

The first investment amounts to Rs 8.9 bn in Reliance Infrastructure, while the second is Rs 1.5 bn in Reliance Power.

Authum agreed to this arrangement last year, becoming a shareholder in Reliance Infra and Reliance Power. This helps settle the debt issue, and Reliance Power benefits from the capital infusion received through the shares.

What Next?

As we know, India's growing population and increased per capita income are fueling a surge in electricity demand.

Reliance Power, recognising the need for a diverse energy approach, stands out with its product portfolio. From coal and natural gas to wind, solar, and hydroelectric projects. Reliance Power covers the entire spectrum of power generation sources.

However, there are strong competitors in the sector which Reliance Power has to compete with.

And the company does not have a long history of reporting consistent profit and regular sales.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	82,013	75,623	79,340	75,031	75,427
Growth (%)	-15%	-8%	5%	-5%	1%
Operating Profit	42,667	36,622	40,296	29,186	22,250
OPM (%)	52%	48%	51%	39%	29%
Net Profit	-29,518	-42,715	1,812	-9,640	-4,708
Net Margin (%)	-36%	-56%	2%	-13%	-6%
ROE (%)	-15.3	-29.2	3.5	-7.7	-3.1
ROCE (%)	0.5	-2.7	7.5	5.1	6.6
Dividend (Rs)	0	0	0	0	0
Debt to Equity (x)	1.8	2.4	2.1	2	1.8

Data Source: Ace Equity

The stock also holds the unenvied title of the worst performing IPO on our list having lost over 95% of its value over its issue price.

Moreover, as highlighted by a rating agency, all thermal power plants are required to reduce their emissions of nitrogen oxide, sulphur dioxide and particulate matter.

To comply with these norms, Reliance Group's thermal power plants at Madhya Pradesh and Uttar Pradesh are required to install FGD systems by December 2026. The total capital cost is estimated at over Rs 32 bn! This remains a key risk, even as some amount is passed on as tariffs.

Having said that, investors are taking a positive approach towards the company after the recent debt reduction developments.

Debt has acted as a big overhang on Reliance Power's prospects and with that out of the way, the company could possibly thrive in a booming sector.

How Reliance Power Share Price has Performed Recently

In the past five trading sessions, Reliance Power share price has rallied over 20%. This at a time when smallcaps, midcaps, heck even some largecaps have been under pressure.

The stock was locked in the 5% upper circuit as soon as the debt reduction news came out.

Reliance Power has a 52-week high of Rs 33.1 touched on 8 January 2024 and a 52-week low of Rs 9.1 touched on 28 March 2023.

In the past one year, shares of Reliance Power have moved up by 130%.

About Reliance Power

Reliance Power is a key player in the construction and operation of power projects, both within India and on the international stage.

The company claims to have the largest portfolio of power projects in the private sector, including both thermal and renewable energy sources.

With nearly 6,000 MW of operational power generation assets, Reliance Power's strength lies in the strategic placement of each project. These projects are located near readily available fuel supplies or load centres, optimising efficiency and accessibility.

In July 2023, the company took a strong step to expand its global reach.

Reliance Power entered into a MOU with the Government of Bangladesh to develop a gas-based project with a capacity of 3,000 MW in a phased manner.

This international collaboration underscores Reliance Power's commitment to expanding its footprint and contributing to power generation beyond national borders.

For more details about the company, you can have a look at the Reliance Power fact sheet and quarterly results on our website.

You can also compare Reliance power with its peers:

Reliance power vs Adani power

Reliance power vs Tata power

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...