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Reliance Infrastructure
Promoter pay-up for warrants,
Delhi metro starts this week
„Promoters buy 5% stake @ 12% premium to CMP
RELI allotted 22.6mn equity shares @ ~Rs928.9/share to AAA Project (Promoters
group) against balance of 42.9mn convertible warrants issued in Jul’09 raising
Promoters’ stake to ~47.6% (42.7%). The issue price was @ 12% premium to current
market price of Rs829/share. With this the promoters has infused ~Rs21bn capital
(Rs16bn in cash) raising its consol Networth to Rs231bn (US$5bn) and BV to Rs864/sh
(+4% to CMP). We tweak our PO to Rs1330 (1370) on dilution and roll-forward.
Maintain Buy on RELI trading below book
a) Bottoming of Mumbai license area profitability,
b) Pick-up in execution with start of Delhi metro this week, 8 toll roads & 900MW
Rosa TPP in FY11,
c) Receipt of Rs160bn order from Krishnapatnam UMPP and Samalkot gas
plant from RPWR in 3Q,
d) Cash chest (>Rs85bn),
e) Cons. P/BV of 0.95x FY11E and
f) Transformation of RELI into an Infra developer with project wins across
power, roads, metro rail, airports and realty domains.
Avg. RoE Infra project wins + execution pick-up
The cash infused by promoters' will go to fund following projects portfolio.
1) Roads: apart from the 3 toll roads projects which are operational; 5 roads to
start tolling in FY11; it also won 2 roads totaling 240kms in 1QFY11 worth
Rs42bn incl. 180km Delhi-Agra. It also signed concession agreement for
Mumbai sealink in 2Q and is likely to take delivery of Bandra-Worli sealink in
1QFY12E. In all RELI has a well diversified portfolio of 4772 lane kms of
roads and 92lane kms of sea-link.
2) Delhi airport express costing Rs25bn to start this week; Mumbai metro line 1
should start in CY2012 and execution of Rs110bn Mumbai metro line 2 with
attached 1.2mn sq ft of realty is likely start 2HF11.
3) It has won 5 Transco projects of Rs66bn: WRSS is likely to start in 4QFY11.
Our PO of Rs1330 is based on SOTP valuation. The parent business is valued at
Rs427/share based on DCF. We value the stake of 33-45pct in power projects of
Reliance Power at Rs544/share at 10% discount to DCF valuation, while we
value the stake of 49pct in Power distribution business at Rs96/share. Its 74-
100pct stake in Power Transmission business is valued at Rs22/share at 1.2x
book value and stakes of 69pct in the Mumbai Metro project, 95pct in Delhi Metro
Airport Express line and 100pct in road projects are valued based on DCF at
Rs150/share. A stake of 66pct in real estate business is valued at Rs25/share on
DCF basis. Other investments are valued at Rs68/per share on book value.
Based on this, we arrive at an SOTP value of Rs1330/share. Our PO translates
into 1.9x FY12E P/BV (Parent), which is below the utility sector leaders such as
NTPC 2.2x. Risks to our PO are: ability to source quality power, viable gas
supply, discontinuity/delay of power sector reforms, delay in project execution,
non-availability of fuel, currency and freight risks, potential matching of demandsupply of power in India leading fall in power rates.
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