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Reliance Infrastructure
Significant investment book, primarily in promoter group companies
Reliance Infrastructure’s (Rinfra) investments continue to be high, at INR 136.6 bn as at
FY10 end, (FY09: INR 159.4 bn). Of this, INR 99.5 bn is invested in promoter group
companies and INR 34.9 bn in liquid funds. Together, they form 66% (FY09: 94.3%) of
the company’s net worth.
Investment in promoter group companies includes:
• INR 65.1 bn in Reliance Power (RePL), an associate, [cost of equity (INR 17.2 bn) +
capital reserve on dilution (INR 43.2 bn) and balance as profits for the year).
• Investment of INR 34.3 bn in preference shares of non-associate promoter group
companies (INR 11.0 bn in Sonata Investments and INR 23.3 bn Reliance Infra
Projects International).
Further, current assets include INR 5.1 bn towards premium receivable on redemption
of the aforementioned preference shares.
Loans and advances surge (including inter-corporate deposits)
Loans and advances jumped from INR 55.5 bn as at FY09 end to INR 85.9 bn as at FY10
end, of which, inter-corporate deposits increased from INR 15.8 bn to INR 27.7 bn.
Of the total inter-corporate deposits, INR 1.4 bn (FY09: INR 1.4 bn) constitutes deposits
given to Reliance Infrastructure and Consultants, an associate. Details of other parties
to whom inter-corporate deposits have been given are not available.
During FY10, interest income on inter-corporate deposits was INR 2.2 bn yielding an
average return of 9.9%.
Revenue gap and adjustments add to revenue growth
Rinfra revenues stood at INR 146.3 bn in FY10 (FY09: INR 126.3 bn). Of this, INR 11.0
bn recognised as asset under tariff adjustment account is on account of:
• Revenue gaps of INR 9.7 bn, i.e., shortfall in actual returns over assured returns;
which are to be recovered from customers, and carried forward as unbilled revenue.
• Income towards payment of wage revision arrears of INR 1.3 bn.
The outstanding balance of tariff adjustment account as at FY10 end is INR 16.0 bn
(FY09: INR 10.3 bn), indicating that the company received INR 5.3 bn in FY10.
Operating cash flow remains subdued on increased working capital requirement
Cash flows from operations stood at INR 1.7 bn in FY10 (FY09: INR 9.2 bn), despite PBT
of INR 13.5 bn (FY09: INR 13.4) on the back of increased working capital requirement.
Working capital requirement increased on the back of:
• Tariff adjustment, arising due to revenue gaps, jumped by INR 5.7 bn during FY10.
• Increase in debtors from INR 19.3 bn in FY09 to INR 22.5 bn in FY10.
• Rise in advances recoverable in cash or kind by INR 7.6 bn.
IFRS compliance to boost construction revenues on BOT projects
Rinfra recognised toll collection rights of INR 7.7 bn as at FY10 end (FY09: Nil), at actual
cost incurred on BOT projects and amortised it over the concession period.
Migration to IFRS (FY12 onwards) is likely to effectively advance revenue recognition.
Refer our report, ‘IFRS: The big switch’, dated June 09, 2010, for detailed explanation of
IFRS adoption accounting treatment.
Erstwhile warrants forfeited; fresh warrants/shares to promoters boost net worth
Rinfra had issued 4.3 crore warrants of INR 7.8 bn in FY08 to AAA Project Ventures
(AAAPVL), promoter, convertible into equivalent number of equity shares @ INR 1,812/
share.
During FY10, these warrants were forfeited and the amount of INR 7.8 bn was credited
to capital reserve as promoters did not opt to exercise the warrants.
Rinfra’s net worth jumped from INR 169.0 bn in FY09 to INR 207.0 bn in FY10, primarily
due to fresh issue of 4.3 crore warrants @ INR 929/warrant to AAAPVL, of which, 2.0
crore warrants were converted to equivalent equity shares.
On January 7, 2011, AAAPVL has exercised the balance 2.3 crore warrants which have
been converted into equivalent equity shares.
Increased average borrowing cost, despite lower D/E
Average borrowing cost (including capitalised) jumped from 6.5% in FY09 to 8.1% in
FY10, primarily due to repayment of low-cost foreign currency borrowing.
Rinfra’s D/E ratio dipped from 0.6 to 0.4, primarily due to repayment of loan funds out of
the amount received from issue of share warrants.
Related party transactions
Of the current liabilities of INR 70.4 bn as at FY10 end (FY09: INR 59.1 bn), amount
payable to related parties for rendering services stood at INR 20.5 bn (FY09: INR 17.3
bn), ~29.1% (FY09: 29.3%) of current liabilities.
During FY10, advances received towards contracts from joint ventures/associates
aggregate INR 8.0 bn (FY09: INR 18.0 bn), 9.3% (FY09: 32.4%) of total loans and
advances.
Corporate guarantees and collaterals for related parties stood at INR 3.2 bn as at FY10
end (FY09: INR 6.2 bn), ~1.5% (FY09: 3.7%) of net worth.
Other highlights
financial income.
Other current assets include retentions on contracts which have increased from INR 5.8
bn in FY09 to INR 7.6 bn in FY10, 24.4% (FY09: 45.3%) of net current assets.
Provision for disputed matters/contingencies for electricity business and other corporate
matters stood at INR 6.3 bn as at FY10 end (FY09 end: INR 5.6 bn), ~3.0% (FY09:
3.3%) of net worth.
Post BS date, the company sold investments in two wholly-owned subsidiaries (BSES
Kerela Power and Reliance Energy Generation) to RePL. The turnover of these
subsidiaries as at FY10 end was INR 4.5 bn with a net worth of INR 1.9 bn.
During FY10, unrealised gain on fair valuation of foreign exchange derivative transactions
was INR 0.8 bn (FY09: unrealised loss, INR 1.7 bn) ~ 5.9% (FY09: - 12.7%) of PBT.
Net unhedged foreign currency exposure stood at INR 16.4 bn as at FY10 end (FY09 end:
7.9 bn).
During FY10, Rinfra bought back and extinguished 0.7 mn equity shares aggregating INR
431.5 mn through open market transactions at average price of INR 616/share.
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