Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Infrastructure Ltd
Neutral
RLIN.BO, RELI IN
Pressures on electricity distribution business
• The management of Reliance Infra has admitted to severe liquidity
pressures in its Delhi distribution business, citing a steep increase in debt
levels to fund ongoing capex and in power procurement cost, while tariffs
have not risen commensurately. As per management, banks are unwilling to
fund the company and tariffs would need to be raised steeply by Rs2/KWH
(which would imply more than a 50% average increase in our estimate). The
company filed its FY12 tariff petition with the regulator in March-11.
• A closer analysis of Delhi distcoms balance sheets and P/L: Distcoms
have been reporting profits by accounting for deferred tariffs (tariff hikes
allowed by regulators but not billed to consumers). If these are excluded,
they made cash losses in FY10. RELI’s distcoms carried total debt of
Rs46B in FY10, which has risen to Rs64B in Mar-11 as per management. In
FY10, the net debt/EBITDA ratios ranged from 3x to 5x for the three
companies (which did not appear alarming from a lender’s perspective) and
only one of the three distcoms had a small accumulated loss. Management
commentary seems to suggest that things have deteriorated very sharply in
the last 12 months.
• In our view, RELI’s state is a reflection of the pressures faced by the
whole electricity distribution chain, which reported a US$7B loss in
FY09, had outstanding loans of US$53B, and interest cost of US$4.2B. Like
RELI, we think the system could also be in deeper losses today.
• RELI is also facing uncertainty around Mumbai distribution, where its
license expires in August this year. The regulator has ruled that RELI needs
to bid for the license along with other competitors. Mumbai distribution is
RELI’s cash flow engine, and accounts for 60% of its total EBIT.
• Our concerns on the stock arose from group exposures, use of cash flows
for unrelated/low-return ventures, sustainability of Mumbai distribution cash
flows and EPC risks. RELI's sharp underperformance is reflecting these
concerns, but it would take some improvement in market risk appetite
plus stock-specific catalysts for a decisive bounce back – for example, an
increase in Delhi retail tariffs, re-winning Mumbai distribution license.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Infrastructure Ltd
Neutral
RLIN.BO, RELI IN
Pressures on electricity distribution business
• The management of Reliance Infra has admitted to severe liquidity
pressures in its Delhi distribution business, citing a steep increase in debt
levels to fund ongoing capex and in power procurement cost, while tariffs
have not risen commensurately. As per management, banks are unwilling to
fund the company and tariffs would need to be raised steeply by Rs2/KWH
(which would imply more than a 50% average increase in our estimate). The
company filed its FY12 tariff petition with the regulator in March-11.
• A closer analysis of Delhi distcoms balance sheets and P/L: Distcoms
have been reporting profits by accounting for deferred tariffs (tariff hikes
allowed by regulators but not billed to consumers). If these are excluded,
they made cash losses in FY10. RELI’s distcoms carried total debt of
Rs46B in FY10, which has risen to Rs64B in Mar-11 as per management. In
FY10, the net debt/EBITDA ratios ranged from 3x to 5x for the three
companies (which did not appear alarming from a lender’s perspective) and
only one of the three distcoms had a small accumulated loss. Management
commentary seems to suggest that things have deteriorated very sharply in
the last 12 months.
• In our view, RELI’s state is a reflection of the pressures faced by the
whole electricity distribution chain, which reported a US$7B loss in
FY09, had outstanding loans of US$53B, and interest cost of US$4.2B. Like
RELI, we think the system could also be in deeper losses today.
• RELI is also facing uncertainty around Mumbai distribution, where its
license expires in August this year. The regulator has ruled that RELI needs
to bid for the license along with other competitors. Mumbai distribution is
RELI’s cash flow engine, and accounts for 60% of its total EBIT.
• Our concerns on the stock arose from group exposures, use of cash flows
for unrelated/low-return ventures, sustainability of Mumbai distribution cash
flows and EPC risks. RELI's sharp underperformance is reflecting these
concerns, but it would take some improvement in market risk appetite
plus stock-specific catalysts for a decisive bounce back – for example, an
increase in Delhi retail tariffs, re-winning Mumbai distribution license.
No comments:
Post a Comment