RELIANCE INFRASTRUCTURE Impacted by extraordinary expenses:Edelweiss

Visit http://indiaer.blogspot.com/ for complete details �� ��


􀂃 PAT down 47% at INR 1.7 bn versus estimated INR 3.2 bn
Despite booking revenues from past regulatory assets (INR 2.47 bn), along with
its corresponding expenses, Reliance Infrastructure (RELI) reported PAT of INR
1.7 bn against our estimates of INR 3.2 bn. The fall of 47% could be due to forex
losses, as other income of INR (-508 mn) was lower by 131%.


􀂃 Electricity revenues drop 8% Y-o-Y; EPC margins down at 7%
Power revenues dropped 8%, despite booking of past revenues, impacting
profits and revealing the large gap in costs recovery. The company has filed a
fresh ARR and expects 24% rise in tariff to correct this situation. EPC margins,
have fallen to 7% in Q2FY11 compared with 9-10% in recent times. The
company, however, expects to have better margins in future as projects achieve
key milestones. EPC revenue guidance has been maintained at INR 45 bn.

􀂃 EPC order book to expand; road, metro projects to buoy cash flows
EPC order book is up to INR 240 bn (180 bn in Q1FY11) due to accretion of road
projects. With more power projects achieving financial closure and accretion to
road portfolio, EPC order book is expected to further expand. Cash levels have
fallen to INR 70 bn (from INR 80 bn in Q1FY11) due to infusion of funds in
under-construction projects and expect the trend to continue further.

􀂃 Traction from R Power projects expected
Reliance Power (associate company) management in the analyst meet
highlighted that it is likely to add ~2 GW capacity (via brownfield) to each of
three underconstruction 4 GW project sites for which all necessary clearances,
fuel, funding equipment orders are in place. The company also guided that it is
on track to commission ~1.4 GW gas based plant at Samalkot by FY12.

􀂃 Outlook and valuations: Improved cash flows in FY11; maintain ‘BUY’
The commissioning of infrastructure projects will improve cash flows in FY11,
with full impact in FY12. We have factored latest cash position and four new road
projects which have financial closure, while reducing earnings by ~15% (FY11E)
and ~11% (FY12E) to factor lower treasury income. The SOTP is revised to INR
1,418 (2.3x FY12 BV), while the stock is trading at 1.7x, FY12E BV. Given 33%
upside, growing visibility on cash flows and benefits from R Power (both EPC
order + investment), we maintain ‘BUY/Sector Outperformer’.