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Reliance Infrastructure – Power and EPC Conglomerate

December 17, 2009

Reliance Infrastructure’s EPC division has a strong order backlog of cINR196bn and we expect robust order inflow from R-Power and other nonpower sources. We also expect lower commodity prices to drive a 90bp EBITDA margin improvement (earlier 40bp) in FY10. The profit contribution from distribution and transmission should grow on the back of additional capex in Mumbai and increasing its stake in the Delhi distribution business to 49% from 26%.

Reliance Power Holding Value – R-Infra’s 45% stake in R-Power is valued at INR695 per share, or 65% of the company’s market cap. This comes to INR556 when we factor in our 20% discount to the current market value, this has been done only due to due to improved visibility on a number of R-Power’s projects. There will be increased profit contribution from Mumbai and Delhi power businesses.

Reliance Infrastructure (RELI) has secured two road project contracts: 1) upgradation and maintenance of Gandhivaram – Mundra port stretch (71 km, US$220 mn); and 2) six-laning and maintenance of Pune-Satara section (140 km, US$380 mn), over the past two weeks through the Build-Own-Transfer route. RELI plans to complete both these projects by end-FY13E. R-Infra is the second largest Roads Developer in India after IRB Infra.

Reliance Infria EPS EStimates – Goldman Sachs estimates it to be Rs 62and Rs 72 for FY10 and FY11 respectively and has set a 12 months target of Rs 1340.

HSBC expects it to be Rs 68 for FY10 and Rs 66 for F11 [yes, de-growth] and has set a 12 months target of Rs 1140.

We will review more construction and EPC stocks tomorrow and hence you can take your call after that. We would only BUY on corrections.

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