Buy Reliance Infra; target of Rs 654: KRChoksey

“Reliance Infrastructure, standalone Rec. PAT grew to Rs 327 crore (+17.3%, YoY) above estimate of Rs 308 crore due to lower EPC revenues. Consolidated net profit grew to Rs 412 crore (+1%, YoY). EBIDTA fell to Rs460 crore below our estimate of Rs 537 crore due to lower than estimated EPC revenues. EBIDTA margin declined 33 bps YoY to 13.3%. Other income jumped 137% YoY to Rs259 crore. Interest expenses increased to Rs 190 crore (+234%, YoY) led by higher debt levels.  RELI has divested 65% stake in the Delhi Airport Metro Express at book value to certain Group companies due to uncertainties caused by a stoppage of its operations. It helps to maintain RELI’s profitability.  RELI has decided to exit the Sea Link project due to differences with MSRDC. It may need to write off about Rs 100 crore spent on the project.”

“Management indicated EPC revenue full year guidance in range to Rs 90-100 bn from the existing order backlog of Rs 156 bn. The order backlog consists of reliance power projects (50%) and rest from internal infra and external projects. RELI has a plan to bid for external power projects (NTPC) and road projects (NHAI) in near future. Tariff revision process is under way by MERC currently. The company expects new tariffs for F2013 to be announced in Q3FY13. The company has implemented the 21% hike announced by DERC from July 1. DERC has also allowed the company an additional surcharge of 8% to recover regulatory assets. The company expects to recover about Rs 5 bn of regulatory assets in FY 2013.”

“RELI has a capability to show sustainable cash flow from regulated electrical and strong growth potential infra businesses. Further, regulator has approved Rs 50 bn assets in Delhi will improve cash flow in electrical business. However, execution of reliance power’s project will determine the performance of RELI. At CMP of Rs 528, the tock is trading at attractive valuation of 0.5x BV for FY13E. We recommend “BUY” with a TP of Rs 654,” says KRChoksey research report.

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