Reliance Infra (RELI) had weak 3Q10 with Rec. PAT Rs2.7bn -30%YoY on non recognition of Rs580mn of profit on electricity sale of Rs700mn (delayed tariff hike in Mumbai License area – MLA), weak execution in EPC (sales -7%YoY), higher depreciation (+41%YoY) and lower treasury income (-27%YoY). However, Rec. PAT would be -15%YoY if profit of Rs580mn has been considered. Reported PAT +10%YoY due to loss of Rs1.4bn on derivative instruments last year. E&C order backlog was Rs190bn – 5.9x FY10E sales.
25%YoY fall in cost of purchased power in 3QFY10 have peaked regulatory assets. However, recovery of unearned revenue (regulatory asset) may happen only from 1QFY11E on tariff hike. RELI’s power purchase tenders – 5 year, 1GW could likely cut cost by ~20% to Rs5.25kWh and 25 year for 1.5GW will structurally fix problems led by expensive spot power.