Company Review: Reliance Infrastructure

Indiabulls Securities: Reliance Infrastructure Ltd. (RELI) recently reported that it has cash and cash equivalents of more than Rs98 billion, which comes as a pleasant surprise amid the ongoing liquidity crunch in the economy. This should help in the timely completion of the various EPC and infrastructure projects lined up by the Company. Meanwhile, RELI’s net sales for Q3’09 increased 75.8% y-o-y, while net profit declined 16.7% primarily due to a change in the accounting policy related to foreign exchange derivatives.
Reliance Power, in which Reliance Infrastructure holds a 45% stake, is well on track to commission the Sasan UMPP (3,960 MW) and Rosa Phase I (600 MW) power plants ahead of schedule.

Reliance Power also bagged the Tilaiya UMPP (4000 MW) in Jharkhand recently. We have valued Reliance Infrastructure’s stake in Reliance Power after arriving at a fair value of Rs. 96 for the latter’s stock. Valuations hold an upside potential, given the initiatives taken by the Government of India (GoI) to develop the country’s power sector.

Order book

The company has an EPC order backlog of more than Rs210 billion. It is currently working on more than 7,200 MW of power projects and Rs40 billion worth of power transmission projects.
Revenues for these projects would be recognized over a period of 4–5 years, which should boost the topline of the company in the coming periods. During Q3’09, revenue recognition from the segment increased 147% y-o-y. Reliance Infrastructure is about to commission the NK Toll and DS Toll projects in Tamil Nadu in the next quarter.

The other road projects in Tamil Nadu are to be commissioned by FY11. These projects are worth Rs31.5 billion and the concession period for the same is 20 years. This should drive growth for Reliance Infrastructure, which is playing a major role in the GoI’s initiative to encourage private sector participation in developing India’s infrastructure.

Meanwhile, work on the Metro projects in Delhi and Mumbai is also in full swing; these are to be commissioned ahead of the scheduled dates.

Valuation

Reliance Infrastructure is currently trading at a forward P/E of 10.2x and 9.8x for FY09E and FY10E, respectively. Our SOTP-based valuation suggests a target price of Rs864, which indicates a potential upside of 48% over the current market price (CMP) of Rs582. We maintain a BUY recommendation.

source: Livemint

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