FY14 is a big year for RELIANCE INFRASTRUCTURE as six assets will become operational, including two road assets, the Mumbai Metro project (Phase 1-11kms), a 5m tonne cement plant and two transmission line projects with total equity investment of USD0.6bn over the next 12 months. This will showcase RELI's execution abilities on top of its prudent capital allocation policy over the past 18 months of not aggressively bidding for new road assets. Our recent discussion with management suggests the company is not yet keen to deploy cash in new assets as it believes that current asset pricing is still not cheap.
The company’s flagship transmission and distribution assets in Mumbai and Delhi are unlikely to make up for the decline in construction revenues (order book down 40% during FY13) and the early stage losses from its new infrastructure assets.
HSBC Equities Research revised target price of Rs 400 has been derived using a sum-of-the-parts valuation, implying the stock will trade at a FY15 PE of 6.5x and FY15 P/BV of 0.43x.
