Reliance Infrastructure-- Transforming as Infra developer v/s power utility :: :: BofA Merrill Lynch,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Reliance Infrastructure
Transforming as Infra
developer v/s power utility
Having met with management today at our India Investor Conference
2012 in Mumbai, these are some of our takeaways...
Power Discoms: Positive regulatory to solidify business
􀂃 Mumabai Licence Area: a) License renewed for next 25 years; b) MERC
approved recovery of Rs23.2bn Regulatory Assets and levy of Cross Subsidy
Charge on all migrated consumers from the date of migration.
􀂃 Delhi Discoms: a) Infused Rs5bn equity in Delhi distribution JVs to support
liquidity; b) DERC approved ~22% tariff hike and introduced qtrly fuel price
adjustment surcharge.
Infrastructure Projects: Execution remain track
Roads (Rs120bn):
􀂃 RELI has 11 road projects of 4640 lane kms of which 5 roads project 1940
lane kms are operational and 5 project to start in 4QFY12E.
Metro Rails (Rs170bn):
􀂃 Delhi Airport Metro line (23kms): The Daily passengers crossed 18k since
its operation in Feb’11. Closed retail deals of ~30,000 sqft with key players
like W H Smith, Cafe Coffee Day, VIP, Dabur etc. at Delhi metro stations. As
per mgt. project to achieve cash BEP in 1QFY13.
􀂃 Mumbai Metro - I (11kms): The project is likely to start in CY13.
􀂃 Mumbai Metro-II (32kms): The execution at project with attached 1.2mn sqft
realty likely to start by CY12.
Power Transmission (Rs66bn):
􀂃 WRSS: Started 5 out of 9 lines of Solapur Karad, Parli Solapur, Lonikhand
Kalwa lines in Maharashtra and Limdi Vadavi & Vadavi Kansari line in
Gujarat. The project likely to be completed in CY12.
􀂃 Mumbai Transmission: Awarded 25 years license for the project. Three new
receiving stations charged in FY11.
􀂃 Parbati Koldam: Signed financing agreement of Rs7.7bn debt with PFC &
REC. Construction activity started at project site.
􀂃 North Karanpura & Talcher II: Completed acquisition process. Transmission
license received and started project execution. Applied for Force Majeure.
Cement (Rs46bn):
􀂃 Developing cement plant of 5mtpa each at Maharashtra & Madhya Pradesh
E&C; Scale-up linked to Reliance Power & Roads projects
􀂃 Strong order book of Rs243bn from power & road projects to be executed
over 2-5 years.
􀂃 Revenue grew 3x YoY in 1HFY12. Expected to achieve 2x YoY growth in 2H.
Price objective basis & risk
Reliance Infrastructure (RCTDF)
Our PO of Rs1080 is based on SOTP valuation. The parent business is valued at
Rs293/share based on DCF. We value the stake of 29-51pct in power projects of
Reliance Power at Rs472/share at 15% discount to DCF valuation, while we
value the stake of 49pct in Delhi Power distribution business at Rs62/share at
15% discount to DCF. Its 74-100pct stake in Power Transmission business is
valued at Rs22/share at 1.3x 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 15% discount to DCF at Rs124/share. A stake of 66pct in real
estate business is valued at Rs21/share on 15% discount to DCF. Other
investments are valued at Rs88/per share at 15% discount to book value. Based
on this, we arrive at an SOTP value of Rs1082/share, which we round to Rs1080.
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.