CMP 380.00

Target Price 425.00

ISIN: INE036A01016

SEPTEMBER 17th

2013

RELIANCE INFRASTRUCTURE LIMITED Result Update: Q1 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Infrastructure

BSE Code 500390

Face Value 10.00

52wk. High / Low (Rs.) 572.35/308.00

Volume (2wk. Avg.) 550000

Market Cap (Rs. in mn.) 99951.40

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 223815.50 243958.90 261036.02

EBITDA 40170.70 47949.28 52383.80

Net Profit 22468.30 22755.37 24260.16

EPS 85.42 86.51 92.23

P/E 4.45 4.39 4.12

Shareholding Pattern (%)

1 Year Comparative Graph

RELIANCE INFRASTRUCTURE LTD S&P BSE SENSEX

SYNOPSIS

Reliance Infrastructure Limited (RInfra) is India's

largest infrastructure company and leading utility

company having presence in power business i.e.

Generation, Transmission, Distribution, EPC and

Trading.

The consolidated net profit slightly increased to Rs.

4152.00 mn against Rs. 4119.70 mn in the

corresponding quarter ending of previous year, an

increase of 0.78%.

Revenue for the quarter rose by 1.29% to Rs.

54524.50 mn from Rs. 53830.80 mn, when

compared with the prior year period.

EBITDA is increased by 2.83% to Rs. 10171.90 mn

against Rs. 9891.70 mn in the corresponding period

of previous year.

RInfra has been allowed to recover past arrears,

along with 14.5% per annum carrying cost, at Rs.

925 crore per year, aggregating to Rs. 5,550 crore

over the next 6 years.

During the quarter, the Company’s ninth road

project i.e. Jaipur to Reengus in Rajasthan has been

completed and toll collection has started.

During the quarter, RInfra’s EPC business revenue

of Rs. 16696.60 mn and Order book of Rs. 88900 mn

as on June 30, 2013.

Net Sales and PAT of the company are expected to

grow at a CAGR of 3% and 19% over 2012 to 2015E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Reliance Infrastructure Ltd 380.00 99951.40 85.42 4.45 0.38 74.00

Power Grid Corporation of India Ltd 101.55 470148.60 9.51 10.68 1.93 21.10

GMR Infrastructure Ltd 19.30 75396.50 0.13 149.00 1.04 0.00

NTPC Ltd 140.40 1157663.20 15.34 9.15 1.58 40.00

Recommendation & Analysis - ‘BUY’

Reliance Infrastructure Ltd has reported a total Operating Income of Rs. 54524.50 mn (US$ 918 million), against

Rs. 53830.80 mn in the corresponding quarter of previous year. During the quarter, net profit of Rs. 4152 mn

(US$ 70 million) as against Rs. 4119.70 mn in the corresponding quarter of previous year. During the quarter, the

Cash Profit of Rs. 5730 mn (US$ 96 million), against Rs. 5530 mn in the previous year. The Company is

conservatively financed with debt to equity ratio of 0.92 as on June 30, 2013. The Company was generated 1,311

million units and it has traded 1,281 million units in Q1 FY14; amongst top 5 trading licensee in the country.

During the quarter, RInfra’s EPC business revenue of Rs. 16696.60 mn and Order book of Rs. 88900 mn as on

June 30, 2013. The Company Infrastructure segment has reported revenue of Rs. 1796.70 mn in Q1 FY14 an

increase of 83% over previous year. The revenue from Electricity business was Rs. 36031.20 mn in Q1 FY14. The

Company’s ninth road project i.e. Jaipur to Reengus in Rajasthan has been completed and toll collection has

started. MERC has order that RInfra has been allowed to recover past arrears, along with 14.5% per annum

carrying cost, at Rs. 925 crore per year, aggregating to Rs. 5,550 crore over the next 6 years. RInfra has a

capability to show sustainable cashflow from regulated electrical and strong growth potential infra businesses.

We expect the company to post a CAGR of 3% and 19% in its top-line and bottom-line respectively. Hence, we

recommend ‘BUY’ for ‘Reliance Infrastructure Ltd’ with a target price of Rs. 425.00 on the stock.

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results updates- Q1 FY14,

Reliance Infrastructure Limited, together with its

subsidiaries, engages in the generation,

transmission, and distribution of electrical power in

India, reported its financial results for the quarter

ended 30th June, 2013.

Months Jun-13 Jun-12 % Change

Net Sales 54524.50 53830.80 1.29

PAT 4152.00 4119.70 0.78

EPS 15.79 15.66 0.78

EBITDA 10171.90 9891.70 2.83

The company’s net profit slightly increased to Rs. 4152.00 million against Rs. 4119.70 million in the

corresponding quarter ending of previous year, an increase of 0.78%. Revenue for the quarter rose by 1.29% to

Rs. 54524.50 million from Rs. 53830.80 million, when compared with the prior year period. Reported earnings

per share of the company stood at Rs. 15.79 a share during the quarter, registering 0.78% increase over previous

year period. Profit before interest, depreciation and tax is Rs. 10171.90 millions as against Rs. 9891.70 millions

in the corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Value in Rs. Million

Q1 FY14 Q1 FY13

Cost of Electrical Energy Purchased

22593.80 22503.80

Cost of Fuel 4437.40 4173.20

Cost of Material Consumed & Sub Contracting Charges

14394.30 14902.70

Employee Benefit Expenses 2913.70 3083.30

Depreciation & Amortization Expense

1361.30 1254.70

Other Expenses 2948.00 2450.20

Segment Revenue

Latest Updates

• Reliance Infrastructure has completed of widening of the entire 136 km Salem-Ulundurpet road in Tamil

Nadu through its Special Purpose Vehicle (SPV) - SU Toll Road Pvt. Ltd with a cost of Rs.1,061 crore.

• The Company’s ninth road project i.e. Jaipur to Reengus in Rajasthan has been completed and toll collection

has started.

• Reliance Infrastructure has announced that as per the Maharashtra Electricity Regulatory Commission

(MERC) order dated 22 August, 2013, RInfra has been allowed to recover past arrears, along with 14.5% per

annum carrying cost, at Rs. 925 crore per year, aggregating to Rs. 5,550 crore over the next 6 years. The

MERC has also allowed RInfra to recover revised Cross Subsidy Surcharge (CSS) of Rs. 819 crore for the

current FY 2013-14, Rs. 896 crore for FY 2014-15 and Rs. 590 crore for FY 2015-16.

• Reliance Infrastructure has tied up with the US based Innovari Inc., for the pilot implementation of the

Automatic Demand Response (ADR) in its licensed distribution area. With this RInfra became India’s first

power distribution company to launch globally successful ADR program for the benefit of its consumer in

Mumbai.

Projects

Metro Projects

• Reliance Metro Line I in Mumbai (12 kms & 12 stations):

� Civil work nearing completion. Signal testing and system integration process started

� Certification process to start commercial operations initiated

� Project is scheduled to be commissioned within 2013

• Reliance Metro Airport Line in Delhi (23 kms & 6 stations) :

� Metro line operations handed over to Delhi Metro Railway Corporation (DMRC) wef July 1, 2013

� Claims for termination payment are fully justified & enforceable and the Company is confident of

receiving the entire investment in Delhi Airport Metro Express Private Ltd (DAMEPL)

Cement:

• Developing two plants of 5 million tons each in Maharashtra and Madhya Pradesh (MP)

� Earned revenue of Rs. 175 mn from Butibori (0.6 mtpa) plant in Maharashtra in Q1 FY14.

� Maihar unit in Madhya Pradesh is on fast track and slated to commission in 2013.

COMPANY PROFILE

Reliance Infrastructure Ltd (RInfra) a part of Reliance Group is the largest infrastructure company developing

projects, through various Special Purpose Vehicles (SPVs), in several high growth areas in the Infrastructure

sector i.e. Roads, Metro Rail, Cement and Airports. The Company is also the leading utility company having

presence across the value chain of power businesses i.e. Generation, Transmission, Distribution, Trading and

EPC.

The SPVs are developing two metro rail projects in Mumbai; awarded eleven road projects with total length of

1,000 kms; operating and maintaining five airports in Maharashtra and developing 2 cement plants of 5 million

tons each in Maharashtra and Madhya Pradesh.

RInfra along with its wholly owned subsidiary generates over 940 MW of power through its five power stations;

distributes power to over 60 lakh consumers in Mumbai and Delhi and is developing five transmission projects

including the first Independent Private Transmission projects in India.

RInfra also provides Engineering, Procurement & Construction (EPC) services for developing power and road

projects.

Highlights for Company Profile

• One of the largest Indian business conglomerates.

• Leading Private Utility Firm in Transmission.

• Significant presence in EPC, Energy and Infrastructure.

Business Area

Company presence spans across three verticals:

1. Engineering, Procurement and Construction

2. Energy

3. Infrastructure

FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 2630.30 2630.30 2630.30 2630.30

Reserves and Surplus 239811.80 258579.80 281335.17 305595.33

1. Sub Total - Net worth 242442.10 261210.10 283965.47 308225.63

2. Minority interest 2056.60 2312.20 2497.18 2622.03

Non Current Liabilities

Long term borrowings 117003.00 126357.10 133180.38 138507.60

Deferred Tax Liabilities 4510.90 5652.30 6330.58 6710.41

Other Long term liabilities 54895.90 34690.80 29487.18 31846.15

Long Term Provisions 3896.00 4184.10 4393.31 4569.04

3. Sub Total - Non Current Liabilities 180305.80 170884.30 173391.44 181633.20

Current Liabilities

Short Term Borrowings 64160.90 79784.70 94145.95 105443.46

Trade Payables 59906.40 68126.40 74939.04 80934.16

Other Current Liabilities 62508.20 79134.50 94961.40 106356.77

Short Term Provisions 2703.50 3507.40 4033.51 4477.20

4. Sub Total - Current Liabilities 189279.00 230553.00 268079.90 297211.59

Total Liabilities (1+2+3+4) 614083.50 664959.60 727933.99 789692.46

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 75053.30 84150.80 90882.86 97244.66

Intangible assets 37148.30 29013.00 30463.65 31682.20

Capital Work in Progress 27328.80 45228.40 54726.36 62935.32

Intangible assets under development 47511.00 54178.70 58755.45 62280.77

a) Sub Total - Fixed Assets 187041.40 212570.90 234828.32 254142.95

b) Non-current investments 92478.00 100339.50 106359.87 111677.86

c) Long Term loans and advances 33669.30 23476.80 24885.41 25880.82

d) Other non-current assets 82605.80 95216.80 104738.48 113117.56

1. Sub Total - Non Current Assets 395794.50 431604.00 470812.08 504819.20

Current Assets

Current Investment 30537.10 29342.80 30809.94 32042.34

Inventories 3778.60 4707.20 5460.35 6115.59

Trade receivables 48941.00 37578.80 33820.92 35511.97

Cash and Bank Balances 13770.30 4924.20 5515.10 6066.61

Short-terms loans & advances 104384.40 132950.50 152893.08 171851.82

Other current assets 16877.60 23852.10 28622.52 33284.93

2. Sub Total - Current Assets 218289.00 233355.60 257121.91 284873.26

Total Assets (1+2) 614083.50 664959.60 727933.99 789692.46

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 242718.00 223815.50 243958.90 261036.02

Other Income 7611.20 10514.30 11355.44 11923.22

Total Income 250329.20 234329.80 255314.34 272959.23

Expenditure -214892.30 -194159.10 -207365.06 -220575.43

Operating Profit 35436.90 40170.70 47949.28 52383.80

Interest -13359.40 -16874.30 -18224.24 -20046.67

Gross profit 22077.50 23296.40 29725.03 32337.13

Depreciation -4033.30 -5511.00 -6062.10 -6789.55

Exceptional Items 0.00 3828.00 0.00 0.00

Profit Before Tax 18044.20 21613.40 23662.93 25547.58

Tax -5441.60 -2026.40 -3549.44 -4062.06

Profit After Tax 12602.60 19587.00 20113.49 21485.51

Minority Interest -54.90 -63.70 -67.52 -70.22

Share of Profit & Loss of Asso 3320.40 2945.00 2709.40 2844.87

Net Profit 15868.10 22468.30 22755.37 24260.16

Equity capital 2630.30 2630.30 2630.30 2630.30

Reserves 239811.80 258579.80 281335.17 305595.33

Face value 10.00 10.00 10.00 10.00

EPS 60.33 85.42 86.51 92.23

Quarterly Profit & Loss Statement for the period of 31st

Dec, 2012 to 30th Sep, 2013E

Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E

Description 3m 3m 3m 3m

Net sales 52958.40 61873.50 54524.50 55614.99

Other income 2489.60 1657.70 2934.60 2582.45

Total Income 55448.00 63531.20 57459.10 58197.44

Expenditure -45206.00 -53388.80 -47287.20 -47884.51

Operating profit 10242.00 10142.40 10171.90 10312.93

Interest -4163.40 -4098.60 -4239.70 -4366.89

Gross profit 6078.60 6043.80 5932.20 5946.04

Depreciation -1359.30 -1638.80 -1361.30 -1415.75

Exceptional Items 3791.20 36.80 0.00 0.00

Profit Before Tax 8510.50 4441.80 4570.90 4530.29

Tax -2047.50 2110.40 -992.50 -906.06

Profit After Tax 6463.00 6552.20 3578.40 3624.23

Minority Interest 4.20 -58.50 -31.80 -33.39

Share of Profit & Loss of Asso 812.20 757.50 605.40 635.67

Net Profit 7279.40 7251.20 4152.00 4226.51

Equity capital 2630.30 2630.30 2630.30 2630.30

Face value 10.00 10.00 10.00 10.00

EPS 27.68 27.57 15.79 16.07

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 60.33 85.42 86.51 92.23

EBITDA Margin (%) 14.60% 17.95% 19.65% 20.07%

PBT Margin (%) 7.43% 9.66% 9.70% 9.79%

PAT Margin (%) 5.19% 8.75% 8.24% 8.23%

P/E Ratio (x) 6.30 4.45 4.39 4.12

ROE (%) 5.20% 7.50% 7.08% 6.97%

ROCE (%) 9.32% 9.77% 10.56% 10.72%

Debt Equity Ratio 0.75 0.79 0.80 0.79

EV/EBITDA (x) 7.54 7.50 6.71 6.45

Book Value (Rs.) 921.73 993.08 1079.59 1171.83

P/BV 0.41 0.38 0.35 0.32

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.380.00, the stock P/E ratio is estimated 4.39 x FY14E and 4.12 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs. 86.51 and Rs.

92.23 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 3% and 19% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.71 x for FY14E and 6.45 x for FY15E.

� Price to Book Value of the stock is expected to be at 0.35 x and 0.32 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.425.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The development of adequate infrastructure has been identified as the most critical pre-requisite for sustaining

the growth momentum of the economy and to ensure inclusiveness of the growth process. Hence, the

Government of India has set massive target by more than doubling the investments in infrastructure from Rs.

20.5 trillion in the 11th Five Year Plan (11th Plan) to Rs. 56.3 trillion during the 12th Five Year Plan (12th Plan)

i.e. 2012-17. The average investment for the 12th Plan as a percentage of GDP is expected to rise to 9.1 per cent

in the 12th Plan from 7.2 per cent in the 11th Plan. The Government has realized that this massive investment

will be feasible only through public-private-sector- participation (PPP) and hence, the share of private sector is

expected to increase from 38 per cent in the 11th Plan to 48 per cent in the 12th Plan.

Roads

Road infrastructure is of prime importance for the growth of economy. India has the second largest road network

in the world comprising of 4.24 million kms of which national highways constitute 2 per cent of the road network

but accounts for 40 per cent of total road traffic. The Planning Commission expects domestic passenger traffic to

increase at Compounded Annual Growth Rate (CAGR) of 12 per cent over the 12th Plan as with domestic cargo

traffic, whereas the international passenger traffic is expected to rise at CAGR of 8 per cent and the international

cargo traffic at 10 per cent CAGR over the same period. The Government in the budget for the year 2013-14 has

announced 3,000 kms of road projects to be awarded in the states of Gujarat, Madhya Pradesh, Rajasthan and

Uttar Pradesh in the first six months. The Government has proposed to set up a regulatory authority to address

the financial stress, construction risks and contract management in the road sector. The total investment in the

12th Plan is estimated to be Rs. 9,200 billion as against Rs. 5,160 billion in the 11th Plan, out of which Rs. 2,945

billion (i.e. 32 per cent) is expected to be financed by the private sector.

Power Sector

India has made rapid strides in the development of power sector both in terms of enhancing power generation as

well as in making power available to widely distributed geographical boundaries. India has the world’s fifth

largest electricity grid with over 210 GW capacities and the world’s third largest transmission and distribution

network. The power sector has been adversely affected over the past 12-18 months due to weak financial health

of the State Electricity Boards (SEBs), fuel shortages and unviable Power Purchase Agreements (PPAs). The

Planning Commission has proposed setting up of National Electricity Fund with a corpus of Rs. 1,000 – Rs. 1,500

crore with state run nodal agencies like Power Finance Corporation of India Limited and Rural Electrification

Corporation of India Limited to finance development of power transmission and distribution network by state

utilities aimed at reducing AT&C losses to 15 per cent in the country. Given the power shortages and increasing

demand for electricity, the total investment in the sector is expected to increase to Rs. 15,000 billion in the 12th

Plan from Rs. 8,045 billion in the 11th Plan.

Railways

One of the largest and busiest rail networks in the world, the Indian Railways is spread over 64,015 route

kilometres and is a major mode of transport for passenger and bulk freight traffic.

• The Indian Railways generated total approximate earnings on originating basis of Rs. 124, 814.87 crore (US$

21.52 billion) during 1st April 2012 to 31st March 2013 as against Rs. 104, 334.61 crore (US$ 18 billion)

during the corresponding period last year, registering an increase of 19.63 per cent. While the total goods

earnings increased by 23.24 per cent, total passenger revenue earnings shot up by 11.35 per cent.

The revenue earnings from other coaching amounted to Rs. 3, 137.92 crore (US$ 540.88 million) during 1st

April 2012 to 31st March 2013. The total approximate numbers of passengers booked during 1st April 2012

– 31st March 2013 were 8501.30 million compared to 8306.17 million during the same period last year,

showing an increase of 2.35 per cent.

• The cumulative foreign direct investment (FDI) inflow into the railways related components sector stood at

US$ 270.33 million from April 2000 to March 2013, according to statistics released by the Department of

Industrial Policy and Promotion (DIPP).

Road Ahead

Infrastructure segment is poised to explode with new developments and investments in the time to come as any

other industry’s progress would directly depend on basic infrastructure of the economy.

A recent study has stated 18,637 km of expressways need be built by the end of the 13th Five-Year Plan period,

i.e. 2022. Infrastructure development (for expressway projects alone), on such a massive scale would require

about Rs 450,000 crore (US$ 77.54 billion), according to the study.

In addition to that, Indian Railways is expected a clock a healthy 5.5 per cent growth in freight traffic in 2013-14

as against a 4 per cent growth for 2012-13, according to a report from the Centre for Monitoring Indian Economy

(CMIE). This growth is expected to come on the back of a healthy growth in the freight traffic of commodities like

coal, cement, iron ore for steel plants and fertilizers.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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