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Rocky road
We expect revenue to flow, but earnings not yet
RELI is India’s largest infrastructure asset owner, with 12 road
projects, three metro projects and four transmission projects.
RELI plans to commission one transmission, two metro projects
and would have five operational road projects in the next 12
months. However, we do not see any of these projects
contributing meaningfully to earnings for the next three years, as
RELI would have to make large interest and depreciation
payments during the first few years after commissioning.
We see multiple overhangs limiting potential upside
We believe there are several overhangs limiting the potential
upside, namely: 1) the lack of clarity on the gas supply for
RPWR’s projects, 2) the possible conversion of outstanding
warrants, which is likely to lead to about a 9.4% equity dilution,
and 3) an equity raising by RPWR, which is likely to lead to a
dilution of RELI’s stake in the company.
Maintain Hold rating; target price raised to Rs1,084
We maintain our 3 (Hold) rating and have raised our SOTP-based
six-month target price to Rs1,084 from Rs1,029. Our SOTP
valuation now comprises: 1) Rs197/share from the generation,
transmission and distribution businesses, 2) Rs160/share for the
EPC business, 3) Rs457/share for a 45% stake in RPWR valued at
a 20% discount to our target price for RPWR of Rs130/share, 4)
Rs157/share for the equity-value of the nine BOT road projects and
two metro-rail projects, and 5) cash and equivalent of Rs113/share.
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