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Reliance Infrastructure (RLIN.BO): Maintain Neutral
What's changed
We reiterate our Neutral rating on Reliance Infrastructure (RELI), as we
believe the risk-reward profile remains balanced. We reduce our sales
forecasts by 4%, 16%, and 14% and our EPS estimates by 2%, 4.5%, and
1.5% for FY12E-FY14E. This reflects slower progress in Sasan project
and milder growth in traffic in the metros. Our EPS estimates are now
7%, 19%, and 2% below Bloomberg consensus for FY12E-FY14E.
We believe the key regulatory overhang is now behind us as MERC is
likely to renew the distribution license for its Mumbai license area for
the next 25 years. It also has been awarded recovery of regulatory assets
worth Rs 23.2bn and allowed to invoice a cross-subsidy charge on all
migrating consumers.
However, the completion of some of its road projects have been delayed
(particularly expanding two-lane roads to four); consequently, toll
collections are down on the existing lanes. Also, traffic growth for both
existing road projects and the Delhi metro has fallen short of
management’s expectations. RELI incurred a loss of Rs 500mn from
Delhi metro in 1QFY12; however, management guided for an improved
top-line through retail and advertising revenue. The company expects to
commission line 1 of Mumbai metro by end of this financial year and
has achieved financial closure for line 2.
We would be more positive on the stock if we have more visibility on
commission of infra projects and on news flows about deployment of its
cash in profitable projects.
Valuation
We cut our 12-month SOTP-based target price to Rs 540 (from Rs 700)
given the following: 1) lower target price of Reliance Power (Rs 70 from
Rs 91) after eliminating the Krishnapatnam project from our valuation; 2)
reduced valuation of EPC business due to contraction in multiples of
other construction peer group; and 3) lower valuation of infrastructure
business due to delay in road projects and low traffic growth.
We have updated our model with the abridged balance sheet. We wait
for the full balance sheet to update our SOTP-based target price with the
details of the cash invested in liquid funds.
Key risks
Upside risks to our forecasts and target price are the following:
1) the completion of Reliance Power projects ahead of schedule and
faster resolution of concerns in Krishnapatnam project; 2) the timely
completion of Mumbai metro and EPC projects; and 3) Improved
profitability of Delhi metro.
Meanwhile, key downside risks include slower progress on road projects
and further delays in the commissioning of the Mumbai metro lines.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Infrastructure (RLIN.BO): Maintain Neutral
What's changed
We reiterate our Neutral rating on Reliance Infrastructure (RELI), as we
believe the risk-reward profile remains balanced. We reduce our sales
forecasts by 4%, 16%, and 14% and our EPS estimates by 2%, 4.5%, and
1.5% for FY12E-FY14E. This reflects slower progress in Sasan project
and milder growth in traffic in the metros. Our EPS estimates are now
7%, 19%, and 2% below Bloomberg consensus for FY12E-FY14E.
We believe the key regulatory overhang is now behind us as MERC is
likely to renew the distribution license for its Mumbai license area for
the next 25 years. It also has been awarded recovery of regulatory assets
worth Rs 23.2bn and allowed to invoice a cross-subsidy charge on all
migrating consumers.
However, the completion of some of its road projects have been delayed
(particularly expanding two-lane roads to four); consequently, toll
collections are down on the existing lanes. Also, traffic growth for both
existing road projects and the Delhi metro has fallen short of
management’s expectations. RELI incurred a loss of Rs 500mn from
Delhi metro in 1QFY12; however, management guided for an improved
top-line through retail and advertising revenue. The company expects to
commission line 1 of Mumbai metro by end of this financial year and
has achieved financial closure for line 2.
We would be more positive on the stock if we have more visibility on
commission of infra projects and on news flows about deployment of its
cash in profitable projects.
Valuation
We cut our 12-month SOTP-based target price to Rs 540 (from Rs 700)
given the following: 1) lower target price of Reliance Power (Rs 70 from
Rs 91) after eliminating the Krishnapatnam project from our valuation; 2)
reduced valuation of EPC business due to contraction in multiples of
other construction peer group; and 3) lower valuation of infrastructure
business due to delay in road projects and low traffic growth.
We have updated our model with the abridged balance sheet. We wait
for the full balance sheet to update our SOTP-based target price with the
details of the cash invested in liquid funds.
Key risks
Upside risks to our forecasts and target price are the following:
1) the completion of Reliance Power projects ahead of schedule and
faster resolution of concerns in Krishnapatnam project; 2) the timely
completion of Mumbai metro and EPC projects; and 3) Improved
profitability of Delhi metro.
Meanwhile, key downside risks include slower progress on road projects
and further delays in the commissioning of the Mumbai metro lines.
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