Thursday, January 21, 2010


What's changed:We visited (1) the 2x600MW Rajiv Gandhi thermal power project Hisar; Reliance Infra (RELI) is an EPC contractor; and (2) the Delhi airport metro link project, operated by RELI for a period of 30 years. Key takeaways: (1) Civil works for the power plant are almost complete and the project may become commercial during 2Q2010. Unit 1 was synchronized in Dec. 2009, 33 months from the main plant order vs. the CEA prescribed timeline of 41 months; (2) 65%-70% of the 23km (16km underground, 7km elevated) Delhi airport metro link project is complete and is on track to become operational by the scheduled timeline of Oct. 2010; (3) the development of property at Dwarka (120,000sq mt) may be delayed to 2011, but lease properties at New Delhi station and Shivaji stadium station (6000 sqm each) will be complete, along with airport metro link.

Site visit gives more visibility on execution; reiterate Buy

Implications: The site visits give us more confidence in RELI's ability to execute on (1) the US$9 bn EPC order book (primarily power); and (2) US$4 bn of infra projects in the pipeline. The EPC work has started on the US$3 bn super critical Sasan power project, which is the key driver of RELI’s near term earnings going forward, in our view. Also, our analysis of FY09 results of Delhi Metro Rail Corporation gives us more visibility on the potential EBITDA margin profile of RELI's Delhi metro project. We believe EBITDA margins for the RELI metro project would be in the range of 80% (vs. 61% for DMRC for FY09) primarily due to a higher lease income component.

Valuation: We believe news flows on execution of RELI’s infra and EPC order book will be a key re-rating trigger for the stock. We reiterate our Buy rating (12- m SOTP-based target price Rs1,370) with potential upside of 21%.

Key risks: Investment in unprofitable infra projects; adverse ruling in case with RIL.

To read the full report: RELIANCE INFRA