>RELIANCE INFRASTRUCTURE LIMITED (MORGAN STANLEY)

Beneficiary of Improving Macro Outlook; Maintain OW

Investment conclusion: We maintain our Overweight rating on Reliance Infrastructure and raise our price target to Rs1,458 as we believe the improvement in the macro outlook and the positive outcome in the Indian general elections bode well for the power and infrastructure sectors in terms of emerging opportunities and easier availability of credit. In addition, improving visibility on execution and increased clarity on balance sheet strength should be positive triggers for the stock.
We believe the stock will trade between our base-case (Rs1,117/share) and bull-case (Rs1,671/share) values and will be a key risk-reward play in the current environment. Our price target tops up our base-case fair value with the investment in preference shares and 50% of the upside available between the bull case and base case for the other components in our sum-of-parts valuation as we believe the probability of our bull case unfolding has increased.

Recent developments: Key developments in the past few weeks include i) Proposed issuance of preferential warrants to be converted into 42.9mn equity shares to the promoters (ADA Group) at Rs1,000/share; ii) Achievement of financial closure by the 600 MW Rosa II power plant and WRSS transmission project; and iii) Possible scheme of arrangement to enable value unlocking in the future.

Where we could be wrong: Any significant slippages on execution or continued ambiguity concerning liquid assets would likely be negative for the stock. In addition, given its high beta, any weakness in the macro environment could put pressure on the stock.

To see full report: RELIANCE INFRASTRUCTURE