Reliance Infra can test Rs 700: Phani Sekhar

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Reliance Infra can test Rs 700: Phani Sekhar

Reliance Infrastructure can test Rs 700, says Phani Sekhar of Angel Broking.

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Excerpts from Your Stocks on CNBC-TV18 Watch the full show » ALSO READ See previous views by Phani Sekhar See what other Experts & Brokerages are saying about Reliance Infra See messages about Reliance Infra

Reliance Infrastructure can test Rs 700, says Phani Sekhar of Angel Broking.

Sekhar told CNBC-TV18, "When we say that Reliance Infrastructure has gone up by 50% we should also remember that it has gone down by 65% in the previous one year. So this stock has been all over the place, irrespective of where its extrinsic value lies and a large of part of that has to do with the structure of the business. Because the cash part of the business which happens to be the distribution business has been under some sort of regulatory cloud to be precise because there was considerable amount of confusion over what happens to the Mumbai franchise and the migration of customers from Reliance Infra to Tata Power."

He further added, "Both those issues are behind us and the load demand for Reliance Infra coming down from 1300mega watt to 1000mega watt, you are seeing a cost of power purchase also coming down and the cross subsidy charge on customers is also discouraging a lot of them from going to Tata Power."

"The Delhi Distribution business is waiting for some kind of equity infusion from the Delhi Government and Reliance Infra, but it is considerably better than what it was last year. But the cash guzzling part of the business wherein you had 11 operational BOT projects going for the last one-one and half year is going to bring good news for the investors because five of those projects are already operational and by this year end or in the next six months you are likely to see the 10 of those 11 projects will be operational and Mumbai Metro one is likely to be operational by December 2012."

"The company will start producing considerable amounts of operational cash flow in the next 12-15 months, which should elevate some of the valuation concerns that people have but if you talk about the intrinsic value and that is what we can talk about I think you are looking at consolidated book value of around Rs 900. But till the company starts producing considerable operational cash flow, I don't see meaningful respite. So my advice for the investor will be to extend his/her time horizon and I think he will make much more than Rs 700. Over a period of two years you can look at a conservative target of Rs 1000."