CRISIL has reaffirmed the outstanding ratings of 'AAA / Stable / P1+' on the debt instruments of Reliance Energy Limited (REL). This follows the approval by the board of directors of Reliance Industries Limited (RIL) for the scheme of demerger of the telecommunications, power and financial services businesses of RIL.

These ratings reflect REL's well-entrenched position in the power transmission and distribution segment in its licence area in north Mumbai. The company's favourable business risk profile also emanates from the low demand risk in its principal Mumbai licence area, its track record of efficient operations and a regulatory regime that allows it to earn a reasonable return on capital after covering all costs. Complementing these business strengths is the company's strong financial position, which is characterised by a strong networth, robust cash generation from operations, low gearing and comfortable interest and debt coverage ratios and strong financial flexibility.

These rating strengths are partially offset by the company's diversification into new areas such as independent power generation projects (IPP) and retail electricity distribution in other geographies. CRISIL also expects the entire debt component of REL promoted Dadri power project to be funded on a non-recourse basis.

Outlook: REL's dominant business position in its license area results in healthy and stable cash generation. REL stands committed to maintaining its strong financial profile even with a larger scale of investment opportunities in the energy sector and CRISIL expects that the strong cash flows generated by the company would be largely utilized for these initiatives only.

About the company: REL's principal business is distributing electricity to consumers in its licence area of north Mumbai. REL sources power from its 500mw generation plant at Dahanu and from Tata Power.

REL has a contracts and engineering-procurement-construction (EPC) division, which undertakes electrification and erection contracts for major public and private sector projects.

REL has plans to set up various power plants including a gas based power plant in Dadri, Uttar Pradesh. The Dadri power plant is expected to supply power to the Northern Grid.

Promoters: The Ambani Family has recently settled the ownership issues impending the Reliance group. With the proposed demerger, the company would now be managed by Anil Ambani and would be a part of the ADA Enterprises. The company also enjoys the benefit of a top-management team of experienced and qualified professionals.

For the fiscal ended March 31, 2005, the company generated a profit after tax (PAT) of Rs.5.20 billion (Rs. 3.74 billion for fiscal ended March 31, 2004) on operating income of Rs.40.84 billion (Rs.35.22 billion). For the quarter ended June 30, 2005, REL reported a PAT of Rs. 1.57 billion (Rs.1.10 billion for the quarter ended June 30, 2004) on operating income of Rs. 9.49 billion (Rs. 9.43 billion).