RELIANCE INFRASTRUCTURE LTD RESEARCH

EQUITY RESEARCH November 13, 2009

RESULTS REVIEW
Share Data Market Cap Price BSE Sensex Reuters Bloomberg Avg. Volume (52 Week) 52-Week High/Low Shares Outstanding Rs. 259.6 bn Rs. 1,152.60 16,848.83 RLIN.BO RELI IN 1.6 mn Rs. 1,357.0 / 425.35 225.27 mn

Reliance Infrastructure Limited

Strong performance in EPC business

Hold

Reliance Infrastructure (RELI) posted an increase of 5.6% yoy and 6.8% qoq in its net sales to Rs. 25.7 bn in Q210 due to healthy growth in EPCs (Engineering, Procurement and Construction) business that contributed 36% to revenue compared to only 18% in Q209. Additionally, supported by change in revenue mix and lower cost for power purchased, the Company maintained the net profit margin at 11.9%. RELIs EPC business offers an excellent revenue visibility through its large order book. Further, its various power generation projects under Reliance Power are making good progress. Thus, we like RELIs long term growth story. However, our SOTP

Valuation Ratios (Consolidated) Year to 31 March EPS (Rs.) +/- (%) PER (x) EV/ Sales (x) 2010E 56.4 (2.1)% 20.4x 2.0x 2011E 54.8 (2.9)% 21.0x 1.9x

valuation suggests a fair value of Rs. 1,149 for the stock. Therefore, we maintain our Hold rating. EPC Division strengthens: The EPC order position stands at a healthy Rs. 196.2 bn with the division working on six power projects with a capacity of over 7000 MW, three metro projects, six road projects and three transmission projects. Moreover, RELI has pre-qualified for about Rs. 500 bn worth of projects and is the preferred bidder for some projects

Shareholding Pattern (%) Promoters FIIs Institutions Public & Others 38 18 26 18

like the Western Sea Link, which could significantly expand its order book in the near future. Additionally, the Company is looking to bid for most of the major infrastructure projects in the near future. Subsequently, we estimate the revenue CAGR of 31.8% for the segment for next three years. Good progress on projects under Reliance Power: Work on Reliance Powers 600 MW Rosa Phase-I project is ahead of schedule and it is expected to start operations by year-end. Moreover, the Company has achieved financial closure for a total generation capacity of close to 5,000 MW, in three projects involving a capital outlay of over Rs 250 bn. In our view, timely completion of these power plants could add significant value in the medium to long term.

Non Promoter Holding > 1% LIC The New India Assurance The Oriental Insurance General Insurance Reliance Capital Trustee 10.3 2.0 1.5 1.3 1.1

Relative Performance
1600 1200 800 400 0 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09

Key Figures (Standalone)

Quarterly data Q2'09 Q1'10 (Figures in Rs. mn, except per share data) Net Sales EBITDA Net Profit Margins(%) EBITDA NPM Per Share Data (Rs.) EPS 24,348 2,388 2,890 24,072 2,604 3,166

Q2'10

YoY%

QoQ%

25,719 2,352 3,069

5.6% (1.5)% 6.2%

6.8% (9.7)% (3.1)%

9.8% 11.9% 12.2

10.8% 13.2% 14.1

9.1% 11.9% 13.4

(0.7)% 0.1% 9.6%

(1.7)% (1.2)% (4.8)%

RELI

Rebased BSE Index

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RELIANCE INFRASTRUCTURE LTD RESEARCH

EQUITY RESEARCH Result Highlights Following are the key highlights for Q210 financial result for RELI. The Net Sales for the Company were Rs. 25,718 mn during the quarter ending September 30, 2009, rising by 5.6% yoy and 6.8% qoq on the back of strong performance by the EPC division. The turnover of the EPC Division rose 114% for the quarter to Rs. 9,281 mn against Rs. 4,339 mn in the corresponding previous period. The Company has an EPC Order Book Position of about Rs. 196.2 bn as on 30 September, 2009. However, the revenues from the sales of electricity energy declined by around 18% yoy to Rs. 16,438 mn due to drop in realization to Rs. 6.3 per unit compared to Rs. 8.3 per unit in Q209 despite a 9% yoy increase in units sold to 2,623 million units. This was largely because drop in the cost of energy purchased to Rs. 6.3 per unit in Q210 against Rs. 9.2 per unit in Q209. Reliance Infrastructure increased its customer base in the Mumbai supply area to 2.72 million. But the distribution of electrical energy in the area fell around 4% to 1,671 million units in the quarter ending September 2009. Net Profit recorded a growth of 6.2% yoy to Rs. 3,069 mn from Rs. 2,890 mn in the corresponding quarter of the previous year. The EBITDA dropped 1.5% yoy and 9.66% qoq to Rs. 2,352.4 mn, mainly due to the fall in revenues from electrical energy.
Key Figures (Consolidated) Year to March FY07 FY08 (Figures in Rs. mn, except per share data) Net Sales Adj. EBITDA Adj. Net Profit Margins(%) Adj. EBITDA Adj. NPM Per Share Data (Rs.) Adj. EPS PER (x) 68,478 5,497 8,254 82,948 6,092 11,782

November 13, 2009

FY09

FY10E

FY11E CAGR(%) (FY09-11E) 138,181 14,568 12,857 5.1% 16.9% (2.5)%

125,013 10,660 13,532

130,284 13,537 13,242

8.0% 12.1%

7.3% 14.2%

8.5% 10.8%

10.4% 10.2%

10.5% 9.3%

37.3 30.5x

49.6 23.0x

57.7 19.8x

56.4 20.2x

54.8 20.8x

(2.5)%

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RELIANCE INFRASTRUCTURE LTD RESEARCH

EQUITY RESEARCH Other Updates RELI won the bid from the NHAI for a road project from Jaipur to Reengus in Rajasthan, estimated to cost Rs. 5.90 bn. The 53 km project is on a build, operate and transfer basis for a period of 18 years. Reliance Infrastructure Ltd and its consortium partners have bagged a Rs. 110 bn Mumbai metro rail project, which is likely to be operational by 2015. The consortium will build, operate and transfer the project after 35 years, with a clause to extend the contract by another 10 years. RELI expects to achieve financial closure for the project within nine months of signing the agreement. RELI have pre-qualified for about Rs. 500 bn worth of projects and are the preferred bidder for some projects like the Western Sea Link. According to company sources, the Company will tap opportunities in sectors like ports and airports, railway stations and freight corridors, besides real estate projects like the Business District in Hyderabad. Reliance Infrastructure Ltd has opened two road projects worth Rs.7.6 bn in Tamil Nadu, the first infrastructure projects to become operational from its stable. Both the projects were awarded to R-Infra by NHAI in January 2006 with a concession period for 20 years. Valuation RELIs stock is currently trading at a forward P/E of 20.4x and 21x for FY10E and FY11E, respectively. Our SOTP-based valuation gives a fair value of Rs. 1,149 for the Companys stock. Thus, we maintain our Hold rating.
SOTP Valuation Businesses Mumbai transmission business Distribution business-Mumbai Generation business-Mumbai Delhi distribution business-Rajdhani Delhi distribution business-Yamuna Reliance Power EPC business Other power plants Investment in Mutual Funds Price per share Method DECF DECF DECF DECF DECF Consensus Target Price Rs. 143 DCF Replacement value Book Value Rs. per share 8 65 27 38 16 645 87 24 240 1149

November 13, 2009

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RELIANCE INFRASTRUCTURE LTD RESEARCH

EQUITY RESEARCH November 13, 2009

Disclaimer
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