Tuesday, September 11, 2007

Stock of the week: Reliance Energy Limited

Reliance Energy Limited was formerly known as Bombay Suburban Electric Supply Limited (BSES) before Reliance group took over the company in 2002.

Reliance Energy is involved in the generation, transmission and distribution of power in Mumbai, Delhi, Kerala and Orissa. It is also an ‘Engineering, Procurement and Construction’ player in power sector.

Reliance Energy distributes more than 28 billion units of power to 25 million customers across the country. It generates about 940 MW power and the power stations are located in Maharashtra, Karnataka, Kerala, Andhra Pradesh and Goa.

In addition, it currently executes projects having total generation capacity of 13,500 MW using gas, coal, wind and hydro power in Maharashtra, Uttar Pradesh, Arunachal Pradesh and Uttarkhand. Reliance Energy has also entered into the infrastructure business, including the Mumbai metro rail project and various road projects of the National Highways Authority of India. It is also active in the trading and transmission of power, making it a fully integrated player in the power sector.

Reliance Energy is a part of Reliance – Anil Dhirubhai Ambani Group, which has interests in telecommunication, power, capital markets and entertainment. After the demise of founder Dhirubhai Ambani in 2002, an accord was reached between his sons Mukesh and Anil in 2005 when Mukesh was given responsibility of Reliance Industries Limited and IPCL; Anil got Reliance Energy, Reliance Communications and Reliance Capital.

According to reports, Reliance – ADA group is set to enter investment and merchant banking advisory services. It has already tied up with Microsoft to launch IPTV services in India.

Business Profile:

Power Generation:

Reliance Energy has the following power plants in operation:

  • Dahanu Thermal Power Station (about 120 km north of Mumbai) with multi fuel feed (2 x 250 MW)
  • 8 MW wind farm project at Jogimatti in Chitradurga district of Karnataka
  • Combined cycle power station at Kochi, Kerala (165 MW)
  • Combined cycle power plant at Samalkot in Andhra Pradesh (220 MW)
  • Naptha based combined cycle power plant at Goa (48 MW)

Goa Power Station of Reliance Energy Limited


Transmission is an intermediary between generation and distribution and it enables transmission of power at 220 kV from Dahanu Thermal Power Station to the company's area of supply in Mumbai suburbs. It operates three modern 220/33 kV receiving stations at Versova, Aarey and Ghodbunder. There are two 220kV Lines also connected to Tata Electric (Borivali) at Aarey receiving station from where extra power flows as and when required.


Reliance Energy Limited's Mumbai operations cover a population of 9.0 million within an area of about 384 square kilometres.

The company’s distribution network consists of 4 zones viz.

  • East Zone, from Chunabhatti to Vikhroli and Mankhurd
  • South Zone, from Bandra to Vile Parle
  • Central Zone, from Goregaon to Kandivali
  • North Zone, from Borivali to Bhayander


The Engineering, Procurement and Construction division of Reliance Energy has completed several projects in India and abroad. Few are given below.

  • 106 MW combined cycle power plant of Gujarat State Electricity Corporation Limited at Dhuvaran, Gujarat
  • 24 MW bagasse based co-generation power plant for Godavari Sugar Mills Limited at Sameerwadi, Karnataka.
  • 20 MW Diesel based generator sets for Surya Chakra Power Limited at Andaman and Nicobar Islands.

Reliance Energy has executed turnkey projects in Bhutan, Dubai and Saudi Arabia.

The company has declared consistent increase in revenues in the last 4 years. For the financial year 2006 – 07, its net profits stood at Rs.801 crores as against Rs.374 crores in 2003 – 04.

Reliance Energy is a constituent of both Sensex (Free float market capitalization: Rs. 13,825 crores; weightage in index: 1.34%) and Nifty (FFMC: Rs.17,812 crores; weightage: 0.76%). Reliance Energy is traded in Futures and Options segment and the lot size is 550 shares.

The daily chart for stock futures of September contracts of REL is displayed above. An increase in price, volume and open interest simultaneously suggests the bullishness in the stock futures. A bullish “three inside up” candlestick formation can also be observed.

Long term outlook:

The stock has to close above its previous resistance at 818.40 made in March 2004 in monthly chart. It did go past its previous high in July 2007; however it did not close above it. We need to wait till the end of the month to confirm the breakout. It can be seen that the previous resistance at 385 acted as a strong support for the stock; though it had gone below 385 in June 2006 it never closed below it. Also, in July 2007 the volumes were at all time high. Going by these, the stock should be able to achieve a breakout.

Medium term outlook:

In medium charts though, the confirmation can be seen. The stock had broken its previous resistance at 706.90 with very good volumes. When we consider the first wave with a low of 360 and a high of 582.90, the target for the third wave works out to 943, which is yet to be attained. So the medium term outlook is still bullish, with a possible increase of 68.

Short term outlook:

In the daily chart, it can be observed that the stock had broken the support trendline and closed below it on two occasions. Watch a bullish “harami” candlestick pattern formation immediately after it closed below support. This is an indication of bullishness (at the bottom of downtrend, though). Whereas, we see a bullish “engulfing pattern” near the resistance, which is not a good sign. There is a possibility that the stock may turn bearish for short term. This can be confirmed by a bearish candlestick pattern when formed near resistance zones.


  • Short term investors may wait and watch
  • Medium term investors can stay invested
  • Long term investors need to look out for a monthly close above 818.40 with good volumes