>RELIANCE INFRASTRUCTURE: SC order prima facie negative: Fine print awaited (EDELWEISS)

■ SC squashes family MoU; no gas for Reliance Power’s Dadri plant
• The Supreme Court (SC) bench gave a 2:1 verdict in favour of Reliance Industries (RIL) by dismissing the validity of the family MoU that had entitled Reliance Natural Resources (RNRL) to source 28 mmscmd of gas (from RIL) at USD 2.34. The ruling implies that there would be no gas for the Dadri plant that was expected to generate ~7.5 GW of power, of which, 50% was to be on merchant basis.

Written order is expected this evening
■ Fallout
• Assuming the decision is final and Dadri power plant is not expected to come up, the valuation of Reliance Power (R Power) would be lower by ~INR 40/share. This translates into an impact of ~INR 170/share for SOTP of Reliance Infrastructure (RELI). In addition, since RELI was also likely to get EPC orders to the extent of ~INR 250 bn, there would be a further ~INR 40/ share impact. Hence, our current RELI SOTP value of INR 1,451 would stand reduced at INR 1,241.

■ Possible recourse for RNRL
• Can approach GoI to get RIL’s gas at USD 4.2/mmbtu for its power plant
• This would negate the above mentioned adverse impact

■ Our view: ‘BUY’
RELI’s SOTP based on this decision would be lower by ~INR 210/share, at INR 1,241. Considering the stock has already corrected by ~8%, to ~INR 970/share, we recommend investors to use this as a buying opportunity.

To read the full report: RELIANCE INFRASTRUCTURE