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Reliance Infrastructure (RInfra) reported a strong improvement in Mumbai Discom
profitability with the removal of MERC’s stay on tariff order. Consequently,
standalone PBIT surged 42% YoY and 84% QoQ, however the benefit was largely
offset by forex losses. EPC book bolstered 29% QoQ primarily on accrual of
Reliance Power’s (RPower) large power projects and the company maintained
FY11 guidance at Rs45bn. Delay in Delhi Metro Airport Expressway was caused by
host of factors including delay in structure handover by DMRC. The project is all
set for operations; awaiting safety and fire approvals it is likely to commence by
December ‘10. The road division continued to post lower-than-estimated traffic. We
maintain BUY given: i) Strong improvement in Mumbai Discom profitability; ii)
Comprehensive growth in infra portfolio; iii) Strong EPC order book accretion and;
iv) Attractive valuations. Our target price suggests 25% upside from current level.
Mumbai Discom profit surges on removal of tariff stay by the Maharashtra
Electricity Regulatory Commission (MERC). Mumbai Discom’s PBIT more than
doubled QoQ to Rs2.76bn from Rs1.01bn. The company accounted for Rs2.47bn
additional revenue during Q2 on increased tariff and also suggested an end to underrecovery
in Mumbai. This is very positive given that Rs16bn regulatory assets are
being carried by the company. Notably, Mumbai volumes declined 8.8% owing to
consumer shifting.
EPC orderbook improves, maintain FY11 guidance. Orderbook improved to
Rs240bn from Rs185.3bn end Q1FY11 with accretion of large RPower projects. EPC
revenue improved QoQ but muted YoY (without internal elimination) with the
company maintaining its full year guidance for FY11 at Rs45bn. Margins were down
7.7% in Q2FY11 and we maintain our full year margin estimate at 8%.
Roads – Muted performance. Road revenue was subdued at Rs125mn QoQ,
suggesting that the initial traffic numbers of the previous years were not improving for
the initial two projects. The company is developing 11 road projects of 970km worth
~Rs120bn, of which three projects are operational and additional five projects would
start generating revenue in FY11.
Maintain BUY on RInfra given the strong improvement in Mumbai Discom
profitability, comprehensive growth in infra portfolio, strong EPC order book accretion
and attractive valuations. The target price of Rs1,253/share factors in RPower at
Rs108/share (post 10% discount to I-Sec’s fair value).
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