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Buy
Reliance Infrastructure (RLIN.BO)
Return Potential: 27% Equity Research
Negatives in the price; execution to gain momentum; reiterate Buy
Source of opportunity
We reiterate Buy on Reliance Infrastructure (RELI) with a revised 12-m SOTPbased TP of Rs925 (from Rs1,260 earlier) implying 27% potential upside. The
stock corrected by about 31% over the past 3 months, which we think may be
attributed to: 1) newsflow on RELI’s settlement with SEBI; 2) regulatory
uncertainty over the renewal of its power licence in the Mumbai circle; 3)
delays in road/metro projects and EPC revenue recognition; 4) increase in
inter-corporate deposits. On revisiting valuations, we believe the current
share price reflects most of the downside risks and expect the stock to re-rate
on newsflow of commissioning various infra projects over next 2 quarters.
Catalyst
1) Commissioning of Delhi airport link project in 4QFY11; 2) financial
closure of its Bandra-Worli sea link and four road projects in 4QFY11/
1QFY12 resulting in toll collections; 3) tariff revision for Mumbai and Delhi
power distribution leading to improvement in cash flows; 4) visibility on
renewal of its license for the Mumbai circle. We expect RELI’s earnings/
cash flow to improve as these catalysts play out.
Valuation
We value RELI on SOTP methodology using: 1) DCF for its power and
infrastructure businesses, 2) EV/EBITDA for its EPC segment; and 3) its stake
in Reliance Power at our 12-m TP of Rs124 along with a holding company
discount of 20%. We value RELI’s investments in liquid/debt funds at book
value as of FY10 as these are readily available for funding its capex
requirements and have assigned no value to its investments in preference
shares and inter-corporate deposits. We lower our FY11E-FY13E EPS by 21%-
26% to reflect the delays in EPC recognition and higher interest costs.
Key risks
1) Delay in financial closure of road projects; 2) adverse regulatory outcome
for Mumbai power distribution; 3) delay in Sasan project revenue recognition.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Buy
Reliance Infrastructure (RLIN.BO)
Return Potential: 27% Equity Research
Negatives in the price; execution to gain momentum; reiterate Buy
Source of opportunity
We reiterate Buy on Reliance Infrastructure (RELI) with a revised 12-m SOTPbased TP of Rs925 (from Rs1,260 earlier) implying 27% potential upside. The
stock corrected by about 31% over the past 3 months, which we think may be
attributed to: 1) newsflow on RELI’s settlement with SEBI; 2) regulatory
uncertainty over the renewal of its power licence in the Mumbai circle; 3)
delays in road/metro projects and EPC revenue recognition; 4) increase in
inter-corporate deposits. On revisiting valuations, we believe the current
share price reflects most of the downside risks and expect the stock to re-rate
on newsflow of commissioning various infra projects over next 2 quarters.
Catalyst
1) Commissioning of Delhi airport link project in 4QFY11; 2) financial
closure of its Bandra-Worli sea link and four road projects in 4QFY11/
1QFY12 resulting in toll collections; 3) tariff revision for Mumbai and Delhi
power distribution leading to improvement in cash flows; 4) visibility on
renewal of its license for the Mumbai circle. We expect RELI’s earnings/
cash flow to improve as these catalysts play out.
We value RELI on SOTP methodology using: 1) DCF for its power and
infrastructure businesses, 2) EV/EBITDA for its EPC segment; and 3) its stake
in Reliance Power at our 12-m TP of Rs124 along with a holding company
discount of 20%. We value RELI’s investments in liquid/debt funds at book
value as of FY10 as these are readily available for funding its capex
requirements and have assigned no value to its investments in preference
shares and inter-corporate deposits. We lower our FY11E-FY13E EPS by 21%-
26% to reflect the delays in EPC recognition and higher interest costs.
Key risks
1) Delay in financial closure of road projects; 2) adverse regulatory outcome
for Mumbai power distribution; 3) delay in Sasan project revenue recognition.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
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