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Reliance Infrastructure
E&C surprise; Mumbai discom
turn; Buy 0.5x P/BV
„1Q Rec PAT +24% on robust E&C; Buy value @ 0.54x Cons P/BV
RELI (Parent) 1QFY12 surprised Rec PAT +24%YoY (+9% BofAMLe) on 1)
robust E&C execution (sales +214%YoY) led by R. Power’s Samalkot project and
2) improved profitability of Mumbai discom (EBIT +54%). Quality of earnings was
better with a 39%YoY fall in treasury income and higher tax rate @ 38.8% (vs
24.7%). Buy RELI on: a) Bottoming of Mumbai license area (MLA) profit, b) pickup in execution – start of Delhi Metro, 4488 lane kms / 10 toll roads & 900MW
Rosa TPP in FY12, c) cash chest (Rs73bn) and d) Cons. P/BV of 0.54x 1QFY12.
Risk: delay in Rs160bn Krishnapatnam UMPP E&C order & execution at R. Power
(44% of SOTP) and group concerns, may limit the stock upside near term.
Backlog strong +51%YoY; Margin up 208bps led by E&C
RELI (Parent) 1Q backlog strong at Rs280bn +51%YoY led by orders from power
projects (9.9GW), Transmission (1500kms) and Road (570kms). E&C execution picks
up at R Power’s Samalkot and Sasan projects while EBIT +205%YoY (margin -40bps)
despite 788bps increase in material / direct expenses. Power did well with EBIT
+54%YoY on tariff hike (ASP +11%YoY @ Rs6.7/kWh) and end of regulatory assets.
Client migration led to volume -16%YoY. Rep PAT +75%YoY on Rs2.3bn
depreciation write-back for FY10-11. RELI completed buy-back of Rs1.4bn of Rs10bn.
Rs48bn equity put-in avg.RoE Infra asset, execution pick-up
1) Roads: Out of 11road project 4 toll roads projects are operational and 6 roads to
start in FY12E; likely delivery of Bandra-Worli sealink in 2HFY12. RELI has a well
diversified portfolio of 4772 lane kms of road and 92 lane kms of sea-link.
2) Metro: Delhi airport express started in 4Q11 and should cash BEP in 1QFY13
per co.; 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 2HF12.
3) 5 Transco projects of Rs66bn: Commissioned line 1 & 2 of the 1500kms
WRSS project in 4Q11 & 1QFY12.
Price objective basis & risk
Reliance Infrastructure (RCTDF)
Our PO of Rs1081 is based on SOTP valuation. The parent business is valued at
Rs271/share based on DCF. We value the stake of 29-51pct in power projects of
Reliance Power at Rs475/share at 15% discount to DCF valuation, while we value the
stake of 49pct in Power distribution business at Rs72/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 Rs145/share. A stake of 66pct in
real estate business is valued at Rs25/share on DCF basis. Other investments are
valued at Rs75/per share on book value. Based on this, we arrive at an SOTP value
of Rs1086/share. Our PO translates into 1.6x FY12E P/BV (Parent), which is below
the utility sector leaders such as NTPC 2x.
Risks to our PO are: ability to source quality power, viable gas supply,
discontinuity/delay of power sector reforms, delay in project execution, nonavailability of fuel, currency and freight risks, potential matching of demandsupply of power in India leading fall in power rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Infrastructure
E&C surprise; Mumbai discom
turn; Buy 0.5x P/BV
„1Q Rec PAT +24% on robust E&C; Buy value @ 0.54x Cons P/BV
RELI (Parent) 1QFY12 surprised Rec PAT +24%YoY (+9% BofAMLe) on 1)
robust E&C execution (sales +214%YoY) led by R. Power’s Samalkot project and
2) improved profitability of Mumbai discom (EBIT +54%). Quality of earnings was
better with a 39%YoY fall in treasury income and higher tax rate @ 38.8% (vs
24.7%). Buy RELI on: a) Bottoming of Mumbai license area (MLA) profit, b) pickup in execution – start of Delhi Metro, 4488 lane kms / 10 toll roads & 900MW
Rosa TPP in FY12, c) cash chest (Rs73bn) and d) Cons. P/BV of 0.54x 1QFY12.
Risk: delay in Rs160bn Krishnapatnam UMPP E&C order & execution at R. Power
(44% of SOTP) and group concerns, may limit the stock upside near term.
Backlog strong +51%YoY; Margin up 208bps led by E&C
RELI (Parent) 1Q backlog strong at Rs280bn +51%YoY led by orders from power
projects (9.9GW), Transmission (1500kms) and Road (570kms). E&C execution picks
up at R Power’s Samalkot and Sasan projects while EBIT +205%YoY (margin -40bps)
despite 788bps increase in material / direct expenses. Power did well with EBIT
+54%YoY on tariff hike (ASP +11%YoY @ Rs6.7/kWh) and end of regulatory assets.
Client migration led to volume -16%YoY. Rep PAT +75%YoY on Rs2.3bn
depreciation write-back for FY10-11. RELI completed buy-back of Rs1.4bn of Rs10bn.
Rs48bn equity put-in avg.RoE Infra asset, execution pick-up
1) Roads: Out of 11road project 4 toll roads projects are operational and 6 roads to
start in FY12E; likely delivery of Bandra-Worli sealink in 2HFY12. RELI has a well
diversified portfolio of 4772 lane kms of road and 92 lane kms of sea-link.
2) Metro: Delhi airport express started in 4Q11 and should cash BEP in 1QFY13
per co.; 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 2HF12.
3) 5 Transco projects of Rs66bn: Commissioned line 1 & 2 of the 1500kms
WRSS project in 4Q11 & 1QFY12.
Price objective basis & risk
Reliance Infrastructure (RCTDF)
Our PO of Rs1081 is based on SOTP valuation. The parent business is valued at
Rs271/share based on DCF. We value the stake of 29-51pct in power projects of
Reliance Power at Rs475/share at 15% discount to DCF valuation, while we value the
stake of 49pct in Power distribution business at Rs72/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 Rs145/share. A stake of 66pct in
real estate business is valued at Rs25/share on DCF basis. Other investments are
valued at Rs75/per share on book value. Based on this, we arrive at an SOTP value
of Rs1086/share. Our PO translates into 1.6x FY12E P/BV (Parent), which is below
the utility sector leaders such as NTPC 2x.
Risks to our PO are: ability to source quality power, viable gas supply,
discontinuity/delay of power sector reforms, delay in project execution, nonavailability of fuel, currency and freight risks, potential matching of demandsupply of power in India leading fall in power rates.
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