Reliance Infrastructure PT Rs 1370 says BoA ML

R. Power reassures us on 39% of our SOTP value of RELI
R. Power showcased its mgt team drawn from NTPC, Coal India, PFC and Lanco,
success of its CSR acts at Sasan that helped it land acquisition without much 'noise'
and disclosed its revised IPP capacity est. of 5GW by FY13E (BofAMLe 3.8GW)
and 25GW by FY16E (BofAMLe 21GW) vs 0.3GW in FY10. Production from its 2bn
T of domestic captive coal mines, higher tariff at Chitrangi and allocation of gas for
2.4GW plant could surprise, while imported coal, naxalism, chinese equipment and
execution remain risks. Buy RELI on: Bottoming of Mumbai license area profitability,
pick-up in execution with start of 7 toll roads & 900MW Rosa TPP in FY11, Rs120bn
order from Krishnapatnam UMPP in 3Q, cash chest (>Rs81bn), Cons. P/BV of 1.2x
FY11E and transformation of RELI into an Infra developer with project wins across
power, roads, metro rail and airports domains.
Domestic coal reserves of 2bt drive superior RoE
R. Power claimed 2bn T of domestic captive coal mines - Tilaiya 1.23bn T, Sasan
700mn T and Rampia coal mines 113mn T, will ensure the lowest cost per kWh in
India. Sasan mine looks to set benchmark productivity of 78tn/manshift vs Indian
avg. Of <6tn. 4GW Chitrangi with 57% RoE in FY16E would more than compensate
for low tariff of Sasan UMPP and deliver blended RoE of 36% in FY16E.
Potential upside: 2.4GW Gas plant, higher price at Chitrangi
R. Power is set to order 2.4GW gas based plant at Samalkot (not in our SOTP)
with likely gas allocation round-the-corner. Potential higher PPA price at Chitrangi
(Rs3/kWh vs BofAMLe 2.5) and Tilaiya UMPP are the potential upside to our
SOTP value.
Risks: Indonesian Tax, execution, Naxalism, viability of gas
A) Its ability to deliver Indonesian coal at USD35-40/tn CIF after paying full royalty
@ ICI index prices, income tax on coal mining / export and meeting DMO, b)
project execution and C) land acquisition for Tilaiya UMPP in Naxal prone zone.