CMP 713.00

Target Price 795.00

ISIN: INE036A01016

MAY 20th

2014

RELIANCE INFRASTRUCTURE LIMITED Result Update: Q4 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Infrastructure

BSE Code 500390

Face Value 10.00

52wk. High / Low (Rs.) 744.10/308.00

Volume (2wk. Avg.) 660000

Market Cap (Rs. in mn.) 187219.54

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 190336.80 201757.01 211844.86

EBITDA 40709.20 44494.51 47436.41

Net Profit 19136.70 21846.11 23350.74

EPS 72.88 83.20 88.93

P/E 9.78 8.57 8.02

Shareholding Pattern (%)

1 Year Comparative Graph

RELIANCE INFRASTRUCTURE LTD S&P BSE SENSEX

SYNOPSIS

Reliance Infrastructure Limited (RInfra) is India's largest infrastructure company and leading utility company having presence in power business.

As on March 31, 2014, the consolidated Networth of the Company stood at Rs. 2,71,430 (US$ 4.5 billion) mn and is book value of Rs. 1032 per share.

During Q4 FY14, Total Income of Rs. 50360.0 mn (US$ 840 n) against Rs. 42184.1 mn in previous quarter, an increase of 19%.

During Q4 FY14, net profit was Rs. 6214.2 mn (US$ 104 mn) – QOQ increase of 38%.

In Q4 FY14, revenue from Electricity business was Rs. 36428.5 mn. Recovered Rs. 4980 mn arrears in FY14.

RInfra was generated 5216 mn units of power and traded 5190 mn units in FY14; amongst top 5 trading licensee in the country.

RInfra’s EPC business revenue was Rs. 47100 mn & Order book of Rs. 66,150 mn as on March 31, 2014.

Infrastructure segment has earned revenue of Rs. 5990 mn in FY14 against Rs. 5220 mn in the corresponding previous year, an increase 15%.

Mumbai Metro Project to start commercial operations within Q1 FY15.

RInfra has recommended a Dividend of Rs. 7.50 per share on fully paid up equity shares of Rs. 10 each.

Reliance Cement Company Private Ltd. (RCC) has entered in to the Jharkhand market.

During the quarter, the Company has restored its holding in Reliance Cement Company Private Ltd to 100%, which was diluted to 19% During the quarter ended September 30, 2013

Operating Profit of the company is expected to grow at a CAGR of 6% over 2013 to 2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Reliance Infrastructure Ltd 713.00 187219.54 72.88 9.78 0.72 75.00

Power Grid Corporation of India Ltd 124.75 646101.30 8.47 14.58 2.41 27.50

GMR Infrastructure Ltd 32.85 127671.90 0.07 468.57 1.78 10.00

NTPC Ltd 142.70 1176627.80 13.31 10.72 1.46 57.50

Recommendation & Analysis - ‘BUY’

Reliance Infrastructure Ltd has reported a Total Income of Rs. 50360.0 mn (US$ 840 n) against Rs. 42184.1 mn in

previous quarter, an increase of 19%. During Q4 FY14, net profit was Rs. 6214.2 mn (US$ 104 mn) – QOQ

increase of 38%. As on March 31, 2014, the consolidated Networth of the Company stood at Rs. 2,71,430 (US$ 4.5

billion) mn and is book value of Rs. 1032 per share.

The Company was generated 5216 mn units of power and traded 5190 mn units in FY14; amongst top 5 trading

licensee in the country. In Q4 FY14, revenue from Electricity business was Rs. 36428.5 mn. Recovered Rs. 4980

mn arrears in FY14; MERC approved arrears of Rs. 9250 mn p.a. for 6 years. Recovered Rs. 2890 mn Cross

Subsidy Surcharge in FY14 and 75,000 new consumers added during the year FY14; Total consumers: 29.1 lakhs.

RInfra’s EPC business revenue was Rs. 47100 mn & Order book of Rs. 66,150 mn as on March 31, 2014.

Infrastructure segment has earned revenue of Rs. 5990 mn in FY14 against Rs. 5220 mn in the corresponding

previous year, an increase 15%. 10 out of 11 road projects are now generating revenue of the company.

Mumbai Metro Project to start commercial operations within Q1 FY15. 5 MTPA cement plant in MP started

commercial production in Q4 FY14 - ~Rs. 3,000 crore plant implemented in a record time of 24 months. WRSS

Transmission project in Maharashtra is fully commissioned. RInfra has a capability to show sustainable cashflow

from regulated electrical and strong growth potential infra businesses. Hence, we recommend ‘BUY’ for

‘Reliance Infrastructure Ltd’ with a target price of Rs. 795.00 on the stock.

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results updates- Q4 FY14,

Reliance Infrastructure Limited, together with its

subsidiaries, engages in the generation,

transmission, and distribution of electrical power in

India, reported its financial results for the quarter

ended 31st March, 2014.

Months Mar-14 Mar-13 % Change

Net Sales 47076.90 61873.50 (23.91)

PAT 6214.20 7251.20 (14.30)

EPS 23.67 27.57 (14.15)

EBITDA 10026.90 10142.40 (1.14)

The company’s net profit declines to Rs. 6214.20 million against Rs. 7251.20 million in the corresponding

quarter ending of previous year, a decrease of 14.30%. Revenue for the quarter declines by 23.91% to Rs.

47076.90 million from Rs. 61873.50 million, when compared with the prior year period. Reported earnings per

share of the company stood at Rs. 23.67 a share during the quarter, registering 14.15% decrease over previous

year period. Profit before interest, depreciation and tax is Rs. 10026.90 million as against Rs. 10142.40 million in

the corresponding period of the previous year.

Break up of Expenditure

Break up of

Expenditure

Value in Rs. Million

Q4 FY14 Q4 FY13 %

Change

Cost of Electrical

Energy Purchased 18648.90 21153.60 -12%

Cost of Fuel 7436.70 5317.00 40%

Cost of Material

Consumed & Sub

Contracting Charges

7357.00 19100.70 -61%

Employee Benefit

Expenses 2403.50 2961.50 -19%

Depreciation &

Amortization

Expense

1263.50 1638.80 -23%

Other Expenses 4487.00 4856.00 -8%

Segment Revenue

1. Electrical Business

• Distribution Business: Largest private sector distributor of power to 63 lakh consumers

Mumbai Distribution

� Recovered Rs. 4980 mn arrears in FY14; MERC approved arrears of Rs. 9250 mn p.a. for 6 years

� Recovered Rs. 2890 mn Cross Subsidy Surcharge in FY14

� 75,000 new consumers added in FY14; Total consumers : 29.1 lakhs

Delhi Distribution

� Power Purchase Cost Adjustment Surcharge of ~7% approved by DERC wef February 01, 2014

� 215,000 new consumers added in FY14; Total consumers : 34.0 lakh

• Transmission

� Western Region Strengthening transmission project in Maharashtra is fully commissioned

� 2 transmission lines of 570 kms i.e. Pune-Parli (311 kms) & Pune-Aurangabad (261 kms) in

Maharashtra commissioned during the year

• Generation

The Company has generated 5,216 million units from all 5 plants compromising of 941 MW in FY14.

• Power Trading

Traded 5,190 million units in FY14; amongst top 5 trading licensee in the country

2. EPC Business

Revenue of Rs. 47100 mn & Order book of Rs. 66,150 mn as on March 31, 2014

3. Infrastructure Business

• Road Projects

� Earned revenue of Rs. 5990 mn in FY14 against Rs. 5220 mn in the corresponding previous year, an

increase 15%

� 2 projects (132 kms) commissioned in FY14 i.e Jaipur Reengus Toll Road & Trichy Karur Toll Road

� 10t of 11 road projects are revenue generating

• Reliance Metro Line in Mumbai (12 kms & 12 stations)

� All projects works are completed

� Civil work completed. Signal testing & System integration process completed

� Trial runs for the entire Versova-Andheri-Ghatkopar stretch completed successfully

� Safety certification process completed; Already received approvals from relevant authorities

including CMRS, Fire department, Electrical Inspector General, etc.

� Final approval from Indian Railway Board awaited

� Project to start commercial operations within Q1 FY15

• Cement:

Operating & developing two plants of 5 million tons each in Maharashtra and Madhya Pradesh (MP)

� The Company is currently producing 5.5 MTPA cement from Maihar in Madhya Pradesh, Kundangunj

in Uttar Pradesh and Butibori in Maharashtra.

� 5 mtpa cement plant in MP started commercial production in Q4 FY14 - ~Rs. 3,000 crore plant

implemented in a record time of 24 months

� Company is currently catering to key markets in MP, UP, Jharkand and selected cities of Maharashtra

– Plans to expand its presence in the central, eastern and northern markets of India

Latest Updates

• Reliance Infrastructure Ltd has recommended a Dividend of Rs. 7.50 (75%) per share on fully paid up equity

shares of Rs. 10 each.

• Reliance Cement Company Private Ltd. (RCC) has entered in to the Jharkhand market.

• During the quarter, the Company has restored its holding in Reliance Cement Company Private Limited to

100%, which was diluted to 19% During the quarter ended September 30, 2013.

COMPANY PROFILE

Reliance Infrastructure Ltd (RInfra) is the largest infrastructure company developing projects, through various

Special Purpose Vehicles (SPVs), in several high growth areas in the Infrastructure sector i.e. Roads, Metro Rail

and Cement.

The Company is also the leading utility company having presence across the value chain of power businesses i.e.

Generation, Transmission, Distribution and Trading of power.

The SPVs are inter alia developing a metro rail project in Mumbai; eleven road projects with total length of 1,000

kms; operating and developing two cement plants of capacity of five million tonnes each per year in Maharashtra

and Madhya Pradesh.

RInfra along with its wholly owned subsidiary generates over 940 MW of power through its five power stations;

distributes power to 63.0 lakh consumers in Mumbai and Delhi and is developing five transmission projects

including the first Independent Private Transmission projects.

RInfra also provides Engineering, Procurement & Construction (EPC) services for developing power and road

projects.

Highlights for Company Profile

• One of the largest Indian business conglomerates.

• Leading Private Utility Firm in Transmission.

• Significant presence in EPC, Energy and Infrastructure.

Business Area

1. Engineering, Procurement and Construction

2. Energy

3. Infrastructure

FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2013 -2016E

FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 2630.30 2625.80 2625.80 2625.80

Reserves and Surplus 258579.80 268808.60 278427.71 301778.45

1. Sub Total - Net worth 261210.10 271434.40 281053.51 304404.25

2. Minority interest 2312.20 2524.30 2650.52 2756.54

Non Current Liabilities

Long term borrowings 126357.10 150491.20 165540.32 175472.74

Deferred Tax Liabilities 5652.30 5067.20 4712.50 4429.75

Other Long term liabilities 34690.80 30397.00 28573.18 27144.52

Long Term Provisions 4184.10 3960.10 4078.90 4201.27

3. Sub Total - Non Current Liabilities 170884.30 189915.50 202904.90 211248.28

Current Liabilities

Short Term Borrowings 79784.70 81888.30 83526.07 86031.85

Trade Payables 68126.40 65402.30 63440.23 65977.84

Other Current Liabilities 79134.50 79135.90 82301.34 84770.38

Short Term Provisions 3507.40 4829.90 5844.18 6662.36

4. Sub Total - Current Liabilities 230553.00 231256.40 235111.81 243442.43

Total Liabilities (1+2+3+4) 664959.60 695130.60 721720.74 761851.49

APPLICATION OF FUNDS

Non-Current Assets

a) Fixed Assets 211822.90 215481.40 219791.03 223087.89

b) Non-current investments 100339.50 141182.10 166594.88 188252.21

c) Goodwill on consolidation 748.00 588.50 635.58 673.71

d) Long Term loans and advances 23476.80 24970.50 26219.03 27267.79

e) Other non-current assets 95216.80 76373.30 67208.50 61831.82

1. Sub Total - Non Current Assets 431604.00 458595.80 480449.02 501113.43

Current Assets

Current Investment 29342.80 41622.20 47033.09 49384.74

Inventories 4707.20 5186.90 5498.11 5773.02

Trade receivables 37578.80 50196.70 58102.69 65075.01

Cash and Bank Balances 4924.20 6523.50 7567.26 8475.33

Short-terms loans & advances 132950.50 104714.00 91101.18 95656.24

Other current assets 23852.10 28291.50 31969.40 36373.72

2. Sub Total - Current Assets 233355.60 236534.80 241271.73 260738.06

Total Assets (1+2) 664959.60 695130.60 721720.74 761851.49

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 223815.50 190336.80 201757.01 211844.86

Other Income 10514.30 12400.40 13020.42 13541.24

Total Income 234329.80 202737.20 214777.43 225386.10

Expenditure -194159.10 -162028.00 -170282.91 -177949.68

Operating Profit 40170.70 40709.20 44494.51 47436.41

Interest -16874.30 -16960.70 -17639.13 -18521.08

Gross profit 23296.40 23748.50 26855.39 28915.33

Depreciation -5511.00 -5340.80 -5607.84 -5944.31

Exceptional Items 3828.00 0.00 0.00 0.00

Profit Before Tax 21613.40 18407.70 21247.55 22971.02

Tax -2026.40 -2743.30 -3080.89 -3445.65

Profit After Tax 19587.00 15664.40 18166.65 19525.37

Minority Interest -63.70 -58.80 -63.50 -67.31

Share of Profit & Loss of Asso 2945.00 3531.10 3742.97 3892.68

Net Profit 22468.30 19136.70 21846.11 23350.74

Equity capital 2630.30 2625.80 2625.80 2625.80

Reserves 249183.60 256581.60 278427.71 301778.45

Face value 10.00 10.00 10.00 10.00

EPS 85.42 72.88 83.20 88.93

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs.in.mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 49772.80 38962.60 47076.90 42369.21

Other income 2961.20 3221.50 3283.10 3414.42

Total Income 52734.00 42184.10 50360.00 45783.63

Expenditure -42136.00 -32271.70 -40333.10 -35801.98

Operating profit 10598.00 9912.40 10026.90 9981.65

Interest -4445.60 -3763.10 -4512.30 -4647.67

Gross profit 6152.40 6149.30 5514.60 5333.98

Depreciation -1420.40 -1295.60 -1263.50 -1162.42

Profit Before Tax 4732.00 4853.70 4251.10 4171.56

Tax -1346.00 -1256.80 852.00 -855.17

Profit After Tax 3386.00 3596.90 5103.10 3316.39

Minority Interest -8.20 -16.40 -2.40 -2.59

Share of Profit & Loss of Asso 888.20 924.00 1113.50 946.48

Net Profit 4266.00 4504.50 6214.20 4260.28

Equity capital 2630.30 2630.30 2625.80 2625.80

Face value 10.00 10.00 10.00 10.00

EPS 16.22 17.13 23.67 16.22

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 85.42 72.88 83.20 88.93

EBITDA Margin (%) 17.95% 21.39% 22.05% 22.39%

PBT Margin (%) 9.66% 9.67% 10.53% 10.84%

PAT Margin (%) 8.75% 8.23% 9.00% 9.22%

P/E Ratio (x) 8.35 9.78 8.57 8.02

ROE (%) 7.78% 6.04% 6.46% 6.41%

ROCE (%) 9.98% 9.37% 9.45% 9.43%

Debt Equity Ratio 0.82 0.90 0.89 0.86

EV/EBITDA (x) 9.68 10.15 9.64 9.28

Book Value (Rs.) 957.36 987.16 1070.35 1159.28

P/BV 0.74 0.72 0.67 0.62

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.713.00, the stock P/E ratio is estimated 8.57 x FY15E and 8.02 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs. 83.20 and Rs.

88.93 respectively.

� Operating Profit of the company is expected to grow at a CAGR of 6% over 2013 to 2016E respectively.

� On the basis of EV/EBITDA, the stock trades at 9.64 x for FY15E and 9.28 x for FY16E.

� Price to Book Value of the stock is expected to be at 0.67 x and 0.62 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.795.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India's planning commission has projected an investment of US$ 1 trillion for the infrastructure sector during the

12thFive Year Plan, with 40 per cent of the funds coming from the private sector. India's focus on infrastructure

over the last decade made the country the second fastest growing economy in the world. India's constant growth

gives investors a tremendous opportunity in the transportation and power segments.

A strong infrastructure sector is vital to the development of a country's economy. Here, the Indian government

has played a major part by liberalising foreign direct investment (FDI) norms. Also, it has taken up large-scale

infrastructure ventures such as the Delhi–Mumbai Industrial Corridor, for which it collaborated with Japan.

Roads

The Indian Government is very particular about the development and maintenance of India’s huge road network;

more so because number of vehicles in the country has been growing at an average rate of 10.16 per cent per

annum over the last five years. Thus a need for efficient and world-class road network becomes inevitable for

smooth transitions of goods and services.

Railways

Indian Railways carried 677.58 million tonnes of commodity-wise freight traffic during April 1–November 30,

2013, an increase of 4.72 per cent on the previous year's 647.01 million tonnes.

The Railways also received 22 National Energy Conservation awards from a total of 112 during 2013, out of 829

applicants. The number of awards the Railways received is the highest of any organisation. The awards are

decided by the 'Award Evaluation Committee' under the Bureau of Energy Efficiency (BEE)/Ministry of Power,

and are based on approved evaluation criteria.

Power

India is witnessing a revival of interest in investments, especially of international operators and investors from

the Middle East, Europe and Japan, especially in the areas of renewables, conventional power generation (with

advanced construction stage or operational) and electrical equipment.

After many months of negotiations, French energy powerhouse, GDF Suez is on the verge of buying a controlling

interest in a power plant owned by Hyderabad-based Meenakshi Energy. This signals a revival in global

investments in India's power industry, and marks GDF's much awaited entry into the country's power sector.

Infrastructure in India: Key Developments

The World Bank is in consultations with the ministries of finance and new and renewable energy for funding

solar projects under phase II of the National Solar Mission. The required funds will be around Rs 80,000 crore

(US$ 12.9 billion). Up to Rs 54,000 crore (US$ 8.7 billion) will be debt based on a 70:30 debt equity ratio. The

World Bank has stated that it is keen on partially financing the debt requirement.

GMR Infrastructure has bagged a bid along with a partner in the Philippines to expand an international airport in

the Southeast Asian country. GMR will partner Philippines-based Megawide Construction Corporation in a 40:60

joint venture.

UK-based construction equipment maker JC Bamford Excavators Ltd is ready to increase its product portfolio in

India to cater to the export and domestic market. JC Bamford is adding manufacturing capability, in an effort to

make India a key manufacturing hub for fully-built equipment, engines and parts.

Government Initiatives

State-owned NTPC Ltd has started filling up the reservoir of its first hydro power project, the 800-Megawatt

(Mw) Koldam project in Himachal Pradesh. The 163-metre reservoir will most likely be filled in the next 11

months and the project could be commissioned during the next financial year. “Koldam project, with four units of

200 Mw each, will provide peaking capacity to the Northern Grid and generate 3,054-Gw-hour electricity

annually.

To enhance the flow of resources to the sector, the Reserve Bank of India (RBI) has allowed holding companies

and core investment companies to raise resources through the external commercial borrowing (ECB) route. The

RBI specified that the business activity of the special purpose vehicle (SPV) should be in the infrastructure sector.

ECB for the SPV can be taken up to three years after the SPV's commercial operations date.

An investment of Rs 50,000 (US$ 806) on a rooftop solar plant will save the domestic electricity consumer Rs

9,200 (US$ 148) a year — according to the Tamil Nadu government. The Tamil Nadu Energy Development

Agency (TEDA), the renewable energy development arm of the State Government, has set the cost of a 1 kW solar

rooftop system at Rs 100,000 (US$ 1613). The investor needs to bring in only Rs 50,000 (US$ 806) of that

amount, with the rest being paid by the Indian government and the Tamil Nadu government.

Road Ahead

Renewable energy is fast emerging as a major source of power. Wind energy is the largest source of renewable

energy in India; it accounts for an estimated 87 per cent of total installed capacity in renewable energy. The

country aims to increase the importance of wind power even further; there are plans to double wind power

generation capacity to 20 GW by 2022.

India is poised to attain the next level in highway development as the authorities and builders are increasingly

focussing on transit efficiency. Experts believe that public funding or other alternate financial models, apart from

PPP, would be instrumental for attaining the required targets.

Moreover, the country has 600-700 km of access-controlled expressways and is working continuously to build

more high-quality, access-controlled expressways for faster connectivity between cities and towns

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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