Reliance Infrastructure CMP: INR528

Transcription

1 BSE SENSEX S&P CNX 17,657 5, August QFY13 Results Update Sector: Utilities Reliance Infrastructure CMP: INR528 Buy Bloomberg RELI IN Equity Shares (m) Week Range (INR) 680/328 1,6,12 Rel. Perf. (%) -1/-14/10 M.Cap. (INR b) M.Cap. (USD b) 2.5 Standalone performance boosted by higher EPC margins: Reliance Infra reported 1QFY13 standalone PAT of INR3.3b v/s our estimate of INR2.5b. PAT stood higher led by higher EPC EBITDA margins at 17% v/s estimate of 7%. EPC division reported revenues of INR17.9b (down 59% YoY) while EBITDA margin stood at 17% vs 20% YoY and 11% QoQ. For FY13 RELI has given guidance for EPC revenue at INR90-100b and margins at 8-10%. 1QFY13 Consolidated PAT at INR4.1b (up 2% YoY): 1QFY13 consolidated revenues stood at INR53.8b (up 4% YoY), EBITDA of INR6.7b (down 15% YoY), and PAT after minority interest at INR4.1b (up 2% YoY). Infra segment (Road segment) revenue stood at INR984m while EBIT stood at INR364m v/s loss of INR55m YoY. Positive EBIT contribution from road segment is led by second year of operations for some of the roads project. Infrastructure business witness traction: Reliance Infra's project portfolio comprises of 25 infrastructure projects aggregating around INR356b, in segments like Roads (11 projects with ~1000kms, cost INR120b), Metro Rails (3 projects, cost INR170b), Transmission (11 projects, cost INR66b), and Airports (5 regional brownfield airports in Maharashtra). RELI has road portfolio of 11 projects where-in 7 are operational and another 3 will enter the revenue generation phase in FY13. In its Metro vertical, Delhi Metro faced structural issues while operating and thus project is not operational in 1QFY13 for restoration. For Mumbai Metro-1, RELI has completed 95% civil work and is planning to start entire Metro by FY13. RELI received viability gap funding of INR5b from MMRDA for Mumbai metro project. RELI has entered into pact with MSRDC to cancel the sea-link project (spent INR1b till date) facing issues with alignment and parallel road. Valuation and view: We have upgarded net profit of RELI to factor in higher other income and higher revenue/ margins in EPC segment during the quarter. Now we we expect RELI to report net profit of INR11.6b in FY13E (down 41% YoY), INR13.3b in FY14E (up 14% YoY). At CMP of INR528/sh, the stock quotes at PER of 10.6x FY14E. Nalin Bhatt (NalinBhatt@MotilalOswal.com); Satyam Agarwal (Agarwals@MotilalOswal.com) / Vishal Periwal (Vishal.Periwal@MotilalOswal.com) 1 Investors are advised to refer through disclosures made at the end of the Research Report.

2 Standalone performance: Higher than estimate, boosted by higher EPC margins Reliance Infra reported 1QFY13 standalone revenues of INR34.5b (down 13% YoY), EBITDA of INR4.6b (down 35% YoY) and PAT of INR3.3b v/s our estimate of INR2.5b. PAT stood higher led by higher EPC EBITDA margins at 17% v/s estimate of 7%. Other Income and Interest Expense for the quarter stood higher at INR2.6b and INR1.9b vs estimate of INR1.1b and INR625m respectively. During 1QFY13, power business reported revenues of INR16.6b (up 23% YoY), while EBIT stood at INR1.8b (down 52% YoY). Lower EBIT has been led by prior period income booked in 1QFY12 of INR2.3b. EPC division reported revenues of INR17.9b (down 59% YoY) while EBITDA stood at INR3b (down 21% YoY). EBITDA margin stood at 17% vs 20% YoY and 11% QoQ. EPC margins have been volatile given project nature of the business. For FY13, RELI is targeting for EPC revenue of INR90-100b and margins of 8-10%. EPC division EBIT (INR m) and margin (%) Source: Company, MOSL 1QFY13 Consolidated PAT at INR4.1b (up 2% YoY) 1QFY13 consolidated revenues stood at INR53.8b (up 4% YoY), EBITDA of INR6.7b (down 15% YoY), and PAT after minority interest at INR4.1b (up 2% YoY). Given temporary closure of the Delhi Metro project RELI has converted Delhi Metro as an Associate with 30% stake and thus reported lower interest expense QoQ at INR3.6b. PAT stood higher despite lower contribution from power segment led by higher EBIT contribution from EPC segment at INR1.8b (up 25% YoY) and positive EBIT contribution from Infra segment at INR364m (v/s loss of INR55m YoY) as some of the road project entered second year of revenue generation. Consolidated 1QFY13 numbers include financial performance of 7 road projects (590 km), 6 transmission line (715km). 16 August

3 Consolidated Performance (INR m) 1QFY13 1QFY12 % Chg. FY12 FY11 % Chg. Revenues Electricity 35,184 33, , , EPC 17,662 17, ,478 29, Infra ,660 1, Net Consolidated Sales 53,831 51, , , EBIT Electricity 3,528 5,244 (32.7) 16,519 12, EPC 1,751 1, ,168 2, Infra 364 (55) n.a. (615) 180 (441.5) PAT 4,120 4, ,868 15, Source: Company, MOSL Infrastructure business to witness traction Reliance Infra's project portfolio comprises of 25 infrastructure projects aggregating around INR356b, in segments like Roads (11 projects with ~1000kms, cost INR120b), Metro Rails (3 projects, cost INR170b), Transmission (11 projects, cost INR66b), Sealink (1 project, cost INR51b) and Airports (5 regional brownfield airports in Maharashtra). MSRDC has entered into pact with RELI to cancel the sealink project awarded to it (RELI has incurred capex of INR1b). Of the total 11 road projects portfolio, 7 are operational and another 3 will enter the revenue generation phase in FY13. Over the last 2 year company has not added new road projects however seeing reduce competitive intensity in the Road bidding. In its Delhi Metro vertical, RELI faced structural issues (faulty bearings) while operating the metro and thus project was closed during the quarter for restoration. Towards Mumbai Metro-one, project post receiving approval for Andheri and Western express way bridge and has completed 2 out of 3 spans and till 1QFY13 it has completed 95% civil work. RELI is planning to start entire Metro by FY13. During the quarter project received viability gap funding of INR5b from MMRDA. Towards its transmission line, 6 out of 9 transmission lines under WRSS are commissioned and revenue generating. Full project CoD by CY12. As at FY12 the Company had invested INR43.6b of equity in various infrastructure SPVs and INR12b outstanding equity is expected to be infused shortly. Valuations and view We have upgarded net profit of RELI to factor in higher other income and higher revenue/margins in EPC segment during the quarter. Now we we expect RELI to report net profit of INR11.6b in FY13E (down 41% YoY), INR13.3b in FY14E (up 14% YoY). At CMP of INR528/sh, the stock quotes at PER of 10.6x FY14E. 16 August

4 Reliance Infrastructure: an investment profile Company description Reliance Infrastructure is an infrastructure conglomerate with presence in Roads, Urban Infra (MRTS), Power (entire chain including Generation, Transmission, Distribution), Real Estate, etc. The company has in-house EPC capabilities developed over period of time. Key investment positives Regulatory approval 1) Renewal of Rinfra' Mumbai region power distribution license for 25 years 2) Recovery of past arrears of INR19b 3) Levy of Cross subsidy surcharge, removes overhang on distribution business of Rinfra. EPC order book stands at INR156b (book to bill ratio of 1.3x). RELI has invested INR40b in its infra portfolio of 25 infra projects aggregating around ~INR400b, of which 7 road projects (590 km), 6 transmission line (715km) are operational and is targeting to commission another 3 Roads and 3 transmission lines by FY13. Net cash stands as at FY12 at INR44b coupled with robust cash flows from existing operations and net debt free status would enable the company to fund equity contribution towards on-going/future projects. Key investment risks Internal orders represent ~80% of EPC business order book and R-Power contributes 90%+ of internal order book, leading to concentration. Sectoral caps/group exposure norms have impacted funding to various power/infrastructure projects. Successful financial closure for major projects under development is important for timely implementation. Recent development MERC has approved Prior recovery of period tariff arrears (Including cross subsidy surcharge) of INR23b. Recovery is to start from 1QFY13. Operational performance of infra projects in FY13. Valuations and view We have upgarded net profit of RELI to factor in 1) Higher other income and higher revenue/margins in EPC segment during the quarter. Now we we expect RELI to report net profit of INR11.6b in FY13E (down 41% YoY), INR13.3b in FY14E (up 14% YoY). At CMP of INR528/sh, the stock quotes at PER of 10.6x FY14E. Sector view We believe that the Indian power sector offers Significant growth potential. Incumbents, especially the CPSUs given better placed on fuel supply and PPA front. Target price and recommendation Current Target Upside Reco. Price (INR) Price (INR) (%) Buy EPS: MOSL forecast v/s Consensus (INR) MOSL Consensus Variation Forecast Forecast (%) FY FY Stock performance (1 year) Shareholding pattern (%) Jun-12 Mar-12 Jun-11 Promoter Domestic Inst Foreign Others August

5 Financials and Valuation 16 August

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