Wednesday, April 22, 2009

>Reliance Infrastructure Ltd. (KR Choksey)

Investment Rationale

Reliance Infrastructure Ltd is not only India’s largest private sector enterprise in power utility but also the largest private sector player in many other infrastructure sectors of India. In the power sector the company is involved in generation, transmission, distribution and trading of electricity and constructing power plants as EPC partners. In the infrastructure space the company is focused on roads, Urban infrastructure which includes MRTS, Sealink and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones. Reliance Infrastructure distributes more than 28 billion units of electricity to cover 25 million consumers across different parts of the country including Mumbai and Delhi in an area that spans over 1, 24,300 sq. kms. It also generates 941 MW of electricity, from our power stations located in Maharastra, Andhra Pradesh, Kerala, Karnataka and Goa.

Reliance Power Ltd
Reliance power is a subsidiary of the company which is been listed mainly with the intention of generation of power. The company through its various subsidiaries is developing various generation projects with an aggregate capacity of ~ 28,000 MW on completion of which the company will be the largest private generating company.

Key Developments
Huge Order book
At the end of the 3rd quarter, the company enjoys a healthy order book of Rs 21,510 crore (3.4x of FY08 sales) and has a substantial cash & liquid balance of Rs 9,898 crore (cash per share of ~Rs 434)

Financial Performance
Net sales of the company has again surprised the street and surged by 80.5% (YoY) to Rs 2,717.6 crore on back of exceptional performance from both its division viz Electrical Energy and EPC & Contracts, increased by 62.4% and
144.7% (YoY) to Rs 2031.2 crore and Rs 686.4 crore respectively

EBIDTA of the company augmented by 7.9% (YoY) to Rs 455.6 crore, majorly impacted by purchase of electricity cost and Material & Sub contract charges, increased by 90.3% and 152.1% (YoY) to Rs 1233.9 crore and Rs 587.7 crore respectively.

PAT of the company gone down by 16.7% (YoY) to Rs 251.2 crore on back of high base effect as Rs 89.5 crore tax was reversed in the previous corresponding quarter. At the end of the Q3FY09, the company enjoys substantial cash & cash equivalent balance of ~Rs 9,898 crore (Rs 434/share) and intact order book of ~Rs 21, 510 crore (3.4x of FY08 sales)

At CMP of Rs 710.2, stock is trading 14.8x TTM EPS of Rs 47.8 and 15.6x on FY09E EPS of Rs 45.5. On back of diversified business model, strong execution capabilities of the management, huge infrastructure development in India, intact order book position, rich cash reserves, the company seems well situated in the current turbulent times. However, we recommend our investors to book profits with a medium term target price of Rs 707.