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Key Takeaways
Mumbai distribution business overhang addressed
MERC has renewed a Reliance Infrastructure (RELI) license to supply power in
Mumbai for 25 years. Consequently, visibility over regulated PAT of INR3.5b a year
has increased.
MERC has allowed cumulative recovery of INR23b. Under recovery on the books
was due to a tariff stay earlier, cross-subsidy surcharge borne due to migrating
customers (INR3.5b) and cost escalation/fuel cost pass throughs.
RELI has invited long term bids of 1,000MW of power from April 2016 and has
initiated RFP. For medium term bids, the average cost is expected to be below
INR4.5/unit.
Infrastructure investment INR49b, six projects already operational, six
expected in FY12
RELI invested INR49b in its infrastructure portfolio and commissioned six infrastructure
projects, comprising four roads, one metro and one transmission project.
The management said its profits from infrastructure were likely to get a boost in
FY12 with the commissioning of six more projects.
RELI adopted a strategy of incurring more upfront equity payment in infrastructure
projects to overcome the negative impact of an elevated interest rates scenario.
We understand ECB raised against metro, transmission projects (at 6-6.5%) will
help to lower interest costs.
RELI sold 20% of its 12,000sq meter property in Delhi for an attractive price of
INR600/sqft/month.
Strong EPC order book of INR280b
EPC division order book was INR280b (book-to-bill ratio of 8x), providing strong
visibility on EPC revenue over 3-4 years.
The management guidance is for EBITDA margin of 8-10% for the division and
revenue growth is expected to be 60%+.
Manpower in the EPC division is 1,600 and RELI has developed in-house competence
to execute power, roads and metros and is adding infrastructure projects such as
airports and ports.
Valuations and view
We expect RELI to post net profit of INR12b in FY12 (up 11% YoY), and INR14.4b in
FY13 (up 20% YoY).
At a CMP, the stock quotes at PER of 10x FY12E and 8x FY13E. Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Mumbai distribution business overhang addressed
MERC has renewed a Reliance Infrastructure (RELI) license to supply power in
Mumbai for 25 years. Consequently, visibility over regulated PAT of INR3.5b a year
has increased.
MERC has allowed cumulative recovery of INR23b. Under recovery on the books
was due to a tariff stay earlier, cross-subsidy surcharge borne due to migrating
customers (INR3.5b) and cost escalation/fuel cost pass throughs.
RELI has invited long term bids of 1,000MW of power from April 2016 and has
initiated RFP. For medium term bids, the average cost is expected to be below
INR4.5/unit.
Infrastructure investment INR49b, six projects already operational, six
expected in FY12
RELI invested INR49b in its infrastructure portfolio and commissioned six infrastructure
projects, comprising four roads, one metro and one transmission project.
The management said its profits from infrastructure were likely to get a boost in
FY12 with the commissioning of six more projects.
RELI adopted a strategy of incurring more upfront equity payment in infrastructure
projects to overcome the negative impact of an elevated interest rates scenario.
We understand ECB raised against metro, transmission projects (at 6-6.5%) will
help to lower interest costs.
RELI sold 20% of its 12,000sq meter property in Delhi for an attractive price of
INR600/sqft/month.
Strong EPC order book of INR280b
EPC division order book was INR280b (book-to-bill ratio of 8x), providing strong
visibility on EPC revenue over 3-4 years.
The management guidance is for EBITDA margin of 8-10% for the division and
revenue growth is expected to be 60%+.
Manpower in the EPC division is 1,600 and RELI has developed in-house competence
to execute power, roads and metros and is adding infrastructure projects such as
airports and ports.
Valuations and view
We expect RELI to post net profit of INR12b in FY12 (up 11% YoY), and INR14.4b in
FY13 (up 20% YoY).
At a CMP, the stock quotes at PER of 10x FY12E and 8x FY13E. Buy.
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