Reliance Infrastructure Limited Conference Call Q1FY10 Results

Reliance Infrastructure Limited Conference Call Q1FY10 Results

July 31, 2009

MODERATORS: MR. LALIT JALAN – CEO AND WHOLE TIME DIRECTOR,

RELIANCE INFRASTRUCTURE LIMITED. MR. S. C. GUPTA – DIRECTOR, RELIANCE INFRASTRUCTURE LIMITED. MR. MADHUKAR MOOLWANEY – SENIOR VICE PRESIDENT, RELIANCE INFRASTRUCTURE LIMITED MR AMIT JAIN – HEAD, INVESTOR RELATIONS, RELIANCE INFRASTRUCTURE LIMITED MR. SHANKAR K. – SENIOR ANALYST, EDELWEISS SECURITIES LIMITED

Reliance Infrastructure Limited July 31, 2009

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Moderator: Ladies and gentlemen good morning and welcome to the Reliance

Infrastructure Limited’s Q1FY10 results conference call, hosted by

Edelweiss Securities Limited. As a reminder for the duration of this

conference, all participants’ lines will be in the listen-only mode and there

will be an opportunity for you to ask questions at the end of today’s

presentation. If you should need assistance during the conference call

please signal an operator by pressing * and then 0 on your touch-tone

phone. Please note that this conference is being recorded. At this time, I

would like to hand the conference over to Mr. Shankar K of Edelweiss,

thank you and over to you sir.

Shankar K: Thank you Melissa. Welcome friends, first of all I would like to sincerely

thank the management of Reliance Infrastructure for providing us an

opportunity to host this call. We are joined by from the management side

Mr. Lalit Jalan, CEO and whole-time Director, Mr. S.C. Gupta, Director

and Mr. Madhukar Moolwaney, Senior Vice President. Mr. Lalit Jalan

would take us through the broad operation and financial highlights of the

quarter, post which we will have the question and answer (Q&A) session.

Without wasting further time, I will hand it over quickly to the management.

Over to you sir, thanks.

Lalit Jalan: Thank you. And thank you to all of you for taking time off to be part of this

Reliance Infra conference call. And let me start with the results that we

announced last evening.

We had an encouraging 1st quarter. Our top-line has grown 12% Y-o-Y.

This is on a standalone basis. Our net profit is at INR 317 crores versus

INR 253 crores, which is a growth of 25%. We have had an earning per

share growth of 30% and this is owing to the reduction of number of

shares owing to buyback done last year. So the annualized EPS is 56

versus 43. Our sales of energy increased by 9% and we continue to be

cash-rich with cash and cash equivalents of about INR 9,000 crores.

The transformation, which began in 2003 with the takeover of the

erstwhile BSES to Reliance Energy and then to Reliance Infrastructure, is

well on way. When we took over BSES in 2003, it was predominantly

Mumbai distribution utility and we took three years to transform this one

city utility into a complete player in the generation, transmission,


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distribution, and EPC player, making it the largest electric utility player in

the country.

In 2006, looking at the huge potential that the infrastructure sector was

bringing and our complementary strengths in this field, the board has

decided to take this opportunity of plunging into the infrastructure space.

And in a short period of three years, I am very happy to say that we have

emerged as the largest Indian infrastructure company. Keeping our new

focus on infrastructure where anyway power is the largest segment, we

decided to change the name to Reliance Infrastructure.

Talking a little bit about our infrastructure piece, we are currently

developing 11 projects, totaling INR 13,500 crores. And these projects do

not include our generation, which is being done through Reliance Power

or our running distribution businesses or our real estate businesses.

These projects are across the road sector, the metro sector and the

transmission sector. And these are projects which are under construction.

Two of these projects have been completed and we are awaiting COD

which could happen any day. We have also emerged as the preferred

bidder in four projects, totaling INR 20,000 crores and we expect award of

those projects to us shortly and these are the Mumbai Metro Line II,

Western Freeway Sealink, NCR Eastern Expressway and five regional

airports in Maharashtra.

We continue to be placed on a very financially sound footing. And last

year, which all of us saw, was a huge financial contagion in the world. Our

group achieves financial closure of INR 32,000 crores across power and

infrastructure projects, out of which, three projects worth around INR

7,000 crores were closed by Reliance Infrastructure, including the two

metro projects and one transmission project.

Furthermore, earlier in the quarter, promoters have agreed to subscribe to

43 million equity warrants, convertible into shares, which will increase our

net worth from more than INR 12,000 crores to more than INR 16,000

crores. This, with our borrowing capacity on a conservative basis of 2:1,

gives us a borrowing capacity of INR 32,000 crores. So, together with the

cash-in-hand and the space in our borrowing capacity, it gives us a INR

40,000 crores headroom of money available to fund our various

infrastructure projects. This does not include internal accruals.


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To give you a brief overview on some of our businesses, we are

developing the three transmission projects and these are under

construction and we are already prequalified to bid for seven other

transmission projects which would be bid on competitive tariff totaling to

around INR 9,000 crores.

Reliance Infra is the largest private sector distribution company having

almost 7 million customers across its three distribution utilities. And we

have bid for four cities in Bihar, the bids for which are due to be opened

shortly. And opportunities in UP, Madhya Pradesh and Maharashtra have

opened up for which we are qualified. And we will bid for them as they

become available to us. We are developing the six road projects and we

won the seventh road project about a fortnight back, which increases our

total road portfolio to more than 500 kilometers, making us one of the

largest three players in this space. And we aspire to have road portfolio of

more than INR 20,000 crores over the next three years.

As mentioned, we are the preferred bidders for the Western Freeway Sea-

Link project. In this project, while we will develop the Worli-Haji Ali, which

will complete in 42 months, we will also buy out the Worli-Bandra link. So,

as a result, the entire concession of the 12 kilometers freeway between

Bandra and Haji Ali for 40 years would remain with R-Infra.

Both our metro projects in Mumbai and Delhi are on track, as mentioned

to all of you in the previous con-calls also. And we have also emerged as

the preferred bidder for the second-line which is from Charkop via Bandra

to Mankhurd it is a 32 kilometer line above the road with the project outlay

of INR 11,000 crores. We have also emerged as a preferred bidder for all

of the five regional airports in Maharashtra. We have to develop these

airports and manage them for a period of 95 years.

Our company has been empanelled by PFC for providing consultancy to

the State Electricity Boards (SEBs) and also to help its implementation.

And we are at an advance stage of completing our assignment with

Karnataka which should finish shortly. And the entire Karnataka team led

by the managing directors had visited Mumbai to look at the State of the

Art distribution infrastructure, the processes, and the ITs that we have

setup in Mumbai. And we are soon going to bid on the implementations

space for Rajasthan and Andhra Pradesh, this two implementation

projects would be totaling to about INR 1,500 crores. This quarter, we will


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be developing the cement business of the group, and we aspire to

develop 20 million tonnes over the next five years. It becomes a natural

backward integration for an infrastructure company like ours which

requires huge amount of cement.

On the cash levels, we have cash and cash equivalent of over INR 9,000

crores. We have a gross debt of around INR 6,000 crores, which makes

our net debt zero. And there has been further reduction of ICDs during the

quarter.

And coming to the distribution business, we serve two out of three homes

in Mumbai and Delhi, serving 7 million customers, which makes us the

largest private sector distributor of power in the country. If you look at

Mumbai, it continues to be the most efficient utility company in the country

with AT&C losses of around 10% when the national average is more than

40%. We add about 100,000 customers every year. And we have added

18,000 customers in the last quarter. We have recently got approval from

MERC to go for competitive bidding for our long-term and medium-term

power. And both the bids have now been advertised, so we are in the

market now for 1,500 MW of long-term power starting 2014 and 1,150 MW

of medium-term power between now till 2014. And we expect to close this

process by end of September and so that the consumers of Mumbai can

look to cheaper power in the long term.

In Delhi distribution, we have had an increase of 16% in the aggregate

total income. During last year, both the companies were in the incentive

zone and continue to be there now also. The share of incentive last year

for the two Delhi companies was at INR 136 crores because of the

overachievement of the AT&C losses. Our AT&C losses have reduced

from over 55% in 2002 to less than 20% now. There has been a

substantial investment in the distribution infrastructure of INR 3,700 crores

in seven years to provide high quality power and services to the

consumers of Delhi. The Delhi Government has saved a total sum of more

than INR 20,000 crores over seven years owing to distribution

privatization of the three circles, to private sector. And the annual savings

to the Delhi Government is to the tune of INR 5,000 crores, which is 25%

of Delhi’s annual budget.

Last year, we increased our stake from 26% to 49% in both the Discoms

and our regulated equity, which was INR 550 crores at the time of


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takeover, is now in excess of INR 1,200 crores on which we get the

regulated returns and incentives . Success of the Delhi privatization has

demonstrated the benefits in creating financially viable and sustainable

distribution businesses. And this is now pushing the other states to adopt

this model. And as I mentioned earlier in my speech that Maharashtra,

UP, Bihar, Madhya Pradesh have shown extreme keenness and some of

them have already put out circles or districts or even companies for

bidding under franchisee model.

On the transmission projects, all the three projects are under execution.

We got the last approval on our Western Regional scheme which is the

approval for getting right-of-way and the execution is already on. And we

are on track, to complete it in time.

On the trading business, in the 1st quarter, we have traded 776 MUs of

electricity versus 262 MUs last year, which is a growth of almost 195%.

And we are one of the largest players of the exchanges trading, traded

about 167 MUs through the IEX.

I will handover to Mr. Gupta to brief you on the operations of our existing

generating plans and our EPC business,

S. C. Gupta: Good morning to all of you and my name is S.C. Gupta and I am Director

– Operation here. As you know that we are operating four power plants,

totaling 941 MW. I am glad to indicate that the Dahanu Thermal Power

Station, which is 2 x 250 MW coal based station, has clocked 105% PLF

in Q1FY10 and more than 100% PLF in the past five years. This

continues to be the star performer not only for Reliance ADAG Group, but

for the entire country. In all of the parameters, whether the PLF, Auxiliary

consumption or heat rates, it has really become a model for the country to

follow.

The other three gas-based plants at Samalkot, Goa and in Kerela are also

doing extremely well. We have a very big portfolio through our company

Reliance Power, where R-Infra owns 45% of the shares. The investment

amount of more than INR 1,700 crores in R Power has grown over ten

times in a short span of time. In addition to performing very well in the

operation of the existing four power stations, we are picking up and doing

extremely well in the EPC space. Our turnover for the quarter has grown

to INR 552 crores in comparison to INR 434 crores last year, providing a


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growth of 27%. The order book position as of now is exceeding INR

20,000 crores, hence, this order book position is swelling everyday.

We have hardcore professionals in our EPC group, including the Centre of

Engineering Excellence exceeding 1,500 professionals appointed 850

executives during the last one year. I am proud to say that the intellectual

capital base in our EPC in the Centre of Engineering Excellence has

grown vertically. Currently, we are working on seven projects,

implementing over 7,200 MW - largest is 4,000 MW Sasan Ultra Mega

power project of R-Power. We have completed Yamuna Nagar plant, a

600 MW coal based. Other projects at Hisar, DVC Raghunathpur are

going on schedule.

The company has taken initiatives in many important areas, which

includes creating a Center of Engineering Excellence, where we are

increasing the knowledge capital base and also handling all these

projects, providing reduction in schedule, enhancing the quality, and

implementing the project at optimized costs. The remote surveillance of

project sites has been implemented through IP Camera System at Butibori

and Raghunathpur project system. Recently, for the first time in the

country, we have introduced the contract management system through

SAP. We have put a special emphasis on fly-ash utilization and created a

separate cell including R&D works to enhance the fly-ash utilization in all

our projects to reduce the cost of implementation. I will handover to my

colleague Mr. Lalit Jalan for further deliberations.

Lalit Jalan: Yeah thank you Mr. Gupta. And coming now again to the infra projects,

we have the road projects, which are the six road projects, which are

under execution. Two of which are complete and the balance four are

scheduled to be completed in the year 2011 which is all on schedule. We

have also been the preferred bidder for the NCR Eastern Expressway and

also the Jaipur-Reengus Road, where we are expecting the award shortly,

for both these NHAI projects and the Western Sea Link which I mentioned

earlier. Both the Metro Projects are on track. And as many of you who

have seen the construction in Mumbai and Delhi, both the projects will be

completed in the times mentioned. And on the line 2, where we are the

preferred bidder we expect the award shortly.

Our de-merger plan into our various 100% owned subsidiaries where we

simplify structure, make it tax sufficient, simple to understand, where we


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can align the incentives of our executive to the businesses is progressing

smoothly. We have got the high court approval. There are certain other

regulatory and other approvals which we expect to get shortly. And over

the next few weeks, we expect that the de-merged structure would

become a reality. With these words, I will now open the floor or Q&A.

Moderator: Thank you sir. Ladies and gentlemen, we now begin the Q&A session.

Anyone who wishes to ask a question may press * and 1 on their touch-

tone telephone. If you wish to remove yourself from the questioning queue

you may press * and 2. Participants are requested to use handsets while

asking a question. Anyone who has a question may press * and 1 at this

time. The first question is from the line of Abhishek Tyagi from CLSA.

Please go ahead.

Abhishek Tyagi: Good morning sir. Sir one question regarding your Mumbai license area,

the company had a regulatory asset of close to INR 10 billion at the end of

FY2009, so what is the regulatory asset at the end of 1st quarter. And will

the company be making any provisions given that MERC has put stay on

the tariff hike?

Lalit Jalan: No, we have made provisions in our accounts of about INR 320 crores up

to now, but we are absolutely confident that the stay on the tariff orders.

would be revoked. It is essentially a political subject because the elections

is in September end and has nothing to do with the tariff orders. We do

not expect any dilution of the regulatory assets that we have, but in terms

of conservative accounting, we have made more than INR 320 crores of

provisions, but we do not expect any dilution whatsoever.

Abhishek Tyagi: Sir what was the provision done in the 1st quarter?

Lalit Jalan: We do not disclose separately on that.

Abhishek Tyagi: Okay. And sir can you give the breakup of the other income that you have

booked in the quarter. And what exactly is the other operating income

what actually is the component…?

Lalit Jalan: Yeah, we can give you the details offline, but basically the other income

includes the interest income and everything to do with any derivatives or

whatever and be mark-to-market everything through the P&L every

quarter. And the operating income would relate to businesses. So,

whatever business related other income that would come.


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Abhishek Tyagi: Thanks. And sir one more question was regarding, what was the reduction

in the ICDs in the 1st quarter?

Lalit Jalan: I cannot give you the exact number but I think it is about INR 300 crores.

Abhishek Tyagi: Okay sir, thanks.

Moderator: Thank you Mr. Tyagi. The next question is from the line of Venkatesh P. of

Citigroup. Please go ahead.

Venkatesh P: Hello yeah, sir congratulations on a decent set of numbers. I had a few

questions, firstly at the start of financial year 2009 you had an EPC order

backlog of roughly around INR 7,800 crores. At the start of the current

financial year, your order backlog has been roughly around INR 200

billion, which is more than double, but your 1st quarter EPC income has

grown only 27%, now why is the reason, why the EPC income, has there

been delays in execution in some of your projects? And secondly what

kind of EPC revenues do you expect to book in the current year?

S. C. Gupta: Actually, the order book position has increased to more than INR 20,000

crores and this is predominantly on account of the new orders which we

have received recently. And all our EPC projects are on schedule, and

there is absolutely no delay.

Lalit Jalan: And basically you will find some lumpiness in the project build, you know

our book-to-bill ratio is typically four years and for a smaller project we do

it in three year and for a larger project it will take four years, so everything

is on track and these are normally little back-ended so you will find this

growth going forward of the existing order book.

Venkatesh P: So what kind of revenues do you expect to do this year on the EPC side

sir?

Lalit Jalan: We had indicated a growth of 40% last year call and we are confident of

maintaining it.

Venkatesh P: Okay. 40% on your FY2009 EPC business you expect to do?

Lalit Jalan: That is right.


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Venkatesh P: Okay. Sir the second question is in Reliance the annual report is already

out, now Reliance Infra International, this particular entity the investments

in the redeemable preference share have gone up from INR 2,000-2,900

crores. Now, firstly what we understand is it was mentioned that the idea

is to reduce the redeemable preference share and reduce the ICDs and

bring the money back into the company, why has this amount gone up

significantly. And, secondly, what does Reliance Infra International do,

that it needs so much money?

Lalit Jalan: No, this is the arm which does procurement overseas and we have not

increased from the time that we mentioned in the call in October we have

not made any increase in investment. And our total investment in ICDs

and fresh capital have reduced substantially from that time. Also, the other

increases are mark-to-market so the Rupee-Dollar it is marked to the

Dollar today.

Venkatesh P: Okay sir. The next question is if you see the segmental results, there if

you see un-allocable income last time, 1st quarter it was INR (-9) crores.

This time it is around INR 200 crores, so what is there in this un-allocable

income and why should it grow so much? I mean has this got to do with

the fact that last year 1st quarter, there were derivative losses and there

are no derivatives losses in this quarter?

Lalit Jalan: Yeah.

Venkatesh P: Okay. Sir last question from my side, what was the average share

buyback price in this quarter and what is the price of conversion for the

promoter warrant sir?

Lalit Jalan: We bought about INR 45 crores worth of shares, the total amount of share

bought from beginning were 1 crores 12 lakhs shares, I could give you the

exact number later on

Venkatesh P: Sir we just want what is the average price at which you bought back this

quarter?

Lalit Jalan: This quarter would have been bought in the range of 575. I will give you

the exact number. The promoter is issued warrants at the SEBI

determined formula price.

Venkatesh P: Which is around 925 or something right?


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Lalit Jalan: Yeah.

Venkatesh P: Okay sir, thank you sir.

Moderator: Thank you. The next question is from the line of Kenin Jain of Voyager

Investments. Please go ahead.

Kenin Jain: Good afternoon Mr. Jalan. Sir, it is mentioned that our Mumbai metro

project is 2 years ahead of the commissioning date, so just wanted to get

a sense that how it affects the viability of the project because when we

would have looked at this project from the commissioning date we would

have got some particular NPV or an IRR and since it has been advanced

by two years, I just want to understand that you know how much lucrative

this project has become A). B) And what has led to early commencement

of this project?

Lalit Jalan: No, basically the concession is of 35 years combined period for

construction and concession. And in their breakup they had presumed five

year of construction and 30 years of concession, however, if you do the

construction earlier than five years your concession period increases. So,

the benefits to the shareholders are on two accounts one is on lower

interest during construction and two is on higher concession period.

Kenin Jain: So the benefit would be large at the SPV level like if one looks at the

present value or the value which could have accrued on completion of this

project…?

Lalit Jalan: Yeah I mean it is a reasonable improvement and all of you are smarter

than us to value that out.

Kenin Jain: Sir, another thing is that this INR 43 million warrant, which has been

assigned to promoters has the entire money been brought in by the

promoters till date?

Lalit Jalan: 25%.

Kenin Jain: Okay. 25% which is around INR 1,000 crores?



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Kenin Jain: Sir could you throw some light what can be the year end order backlog

like as on March 2010 where the order backlog one could see which is

currently at…?

Lalit Jalan: Is it for the EPC.

Kenin Jain: Yes sir.

Lalit Jalan: It is very difficult because see these projects are all lumpy projects it is not

that we are doing a series of INR 200 crores projects that you know there

is a project flow happening every week. So if we win UMPP project, it

could be worth INR 1,2000 crores, so it is very difficult to give an estimate

of a closing order book, but we promise to keep you apprised on a real-

time basis.

Kenin Jain: Sir just one small question, I am sure like our group has an ambitious plan

on the road side, where you mentioned that you intent to have a portfolio

of INR 200 billion over the next three to four years and on the other side

from the Central Government side also there is enough thrust on the road

as in asset class and as an infrastructure theme. So, just to get a sense

that how you personally are believing this sense that over three years that

much quantum of the thing would be awarded A). B) What traffic rates you

guys are really presuming and C) you know whether road as in asset

class would really gained a must interest, some sense on that if you can

throw?

Lalit Jalan: See as I said we have about INR 5,000 crores of road projects in hand,

totaling more than 500 kilometers and one project where we are the

preferred bidders, a INR 4,000 crores project. The honorable minister has

announced in Parliament that he wishes to put out pretty close to INR

100,000 crores worth of projects in each of the next two years under PPP

sector. And being one of the front runners, we think that we should be in a

position to reach that number by 2012. This is one of the sectors which

have opened and this is one of the critical sectors for our economy

because most of the freight and most of the passengers move over the

roads and the condition of which is not desirable. So, as these capacities

on these roads and the quality of these roads improve this will then have a

multiplier effect on the economy, so it is a win-win-win.

Kenin Jain: Okay fine sir, thanks a lot.


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Lalit Jalan: Thank you.

Moderator: Thank you Mr. Jain. The next question is from the line of Atul Tiwari from

Citigroup. Please go ahead.

Atul Tiwari: Yeah, sir I had just one question on the Sealink project that you are

bidding for in Mumbai. Sir, as we understand that you will be paying

around INR 1,600 crores to buy out Bandra-Worli Sealink and after it has

been commissioned the daily toll collections have been around INR 20

lakh, which comes to around INR 80 crores per year of revenue. So how

do you propose to make money if you pay INR 1,600 crores to buy out the

Link and how the revenue of only INR 80 crores per year. Is there

something I am missing in the whole picture?

Lalit Jalan: No there are just two simple issues: 1) half of the bridge has opened, the

other half is still under construction. And which is expected to open by end

of December; 2) if you look at any of these marquee projects like these

sealinks and all that, the traffic and the people to take cognizance and the

traffic growth does take little time worldwide which has been seen; 3) also,

the dispersal system at Worli are being improved, while we speak, so

once the dispersal systems improve, you will find that the traffic will take

up in real earnest. So we are very hopeful of a good traffic flow over the

next one year.

Atul Tiwari: Sir again following up on that, so I mean while bidding, could you just

indicate that what is your estimate of the annual toll collection, etc., which

would make the project viable for you? I mean what kind of growth we

could look at traffic as per your estimates?

Lalit Jalan: See you should just look simply that it is a 40 year concession period,

okay. And if you take whatever is the base toll number that you take with

both the sealinks opening, means both the tracks 8 lanes opening up and

the traffic dispersal system improving, and you add to it a 5% traffic

revenue growth and a 4% tariff growth, as is allowed in the concession so

and then you have a 40 year thing and you can work out your numbers.

Atul Tiwari: Okay thank you sir.

Moderator: Thank you Mr. Tiwari. The next question is from the line of Subhadip Mitra

from B&K Securities. Please go ahead.


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Subhadip Mitra: Good morning sir, Subhadip here. Sir my question was with regards to the

power purchase cost for this particular quarter, it seems to be substantially

lower than what it was last year, although the number of units have gone

up, is there any particular reason for why the power purchase costs have

come down so much?

Lalit Jalan: Yeah the costs have actually lowered this year compared with last year on

account of the liquid fuel cost being down and also the traded power cost

being down and which is reflected in the power purchase cost.

Subhadip Mitra: I see. And the revenue that we are booking the tariff that we are booking

is on the lower tariff that, I mean after the MERC order came out?

Lalit Jalan: Yeah this is the tariff which existed in April, actually the regulator had

given a 2% tariff increase for the year and he has said the 2% tariff so that

is the only difference.

Subhadip Mitra: But the fuel adjustment charges are as per usual?

Lalit Jalan: Yeah whatever was the FAC, on April before the tariff increase, the same

FAC we are charging.

Subhadip Mitra: Fine. So just one more question, this is with regard to the other income,

the other income as of Q1 of 2009 if I look at the BSE release then it

shows a figure of around INR 420 crores, whereas what we are showing

right now is close to about INR 100 crores, has there been some

regrouping of the other income, because of which there is a differential?

Lalit Jalan: This is I think as per the SEBI guidelines, these are regrouped.

Subhadip Mitra: So I mean was there some amount of extraordinary that was there last

year which is not there this year, that is the reason it is appearing to be

lower, that is what I want to ask?

Lalit Jalan: Yeah we can give it to you offline, where you can speak to our CFO.

Subhadip Mitra: Not a problem sir. Thanks a lot. That is all from my side.

Moderator: Thank you Mr. Mitra. The next question is from the line of Bhavna Jagwani

from HDFC Securities. Please go ahead.


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Bhavna Jagwani: Hi good morning sir. My first question pertains to your other expenditure, it

has gone up by about 87% to INR 200 crores does this contain any one

time provision?

Lalit Jalan: Yeah it includes the provision, as we mentioned that we have made

provision towards conservative accounting, so we have made provision in

this quarter also.

Bhavna Jagwani: So could you put a number to that?

Lalit Jalan: We do not disclose the actual number.

Bhavna Jagwani: And it is safe to assume that in last year’s quarter 1, this provision was not

there?

Lalit Jalan: Yeah.

Bhavna Jagwani: Right and now with respect to our other operating income there has been

a sharp fall of about 58% year-on-year to about INR 39 crores versus 92

last year? Could you throw some light on the same?

Lalit Jalan: Yeah there was a one time street light maintenance income which was

there in the last quarter which is not there this quarter.

Bhavna Jagwani: So that should account for the entire amount ?

Lalit Jalan: Yeah predominantly, that was an accrued income for I think four years.

Bhavna Jagwani: It was all booked in Q1…?

Lalit Jalan: It was given, those we book on actual receipt.

Bhavna Jagwani: On actual receipt?

Lalit Jalan: Those kind of income because it was some dispute with the BMC. So

when we paid we booked that.

Bhavna Jagwani: Okay, but even compared to the previous quarters, it is lower like for

example about INR 60 odd crores even in Q4 of last year so is it just

based on such projects?


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Lalit Jalan: Yeah, I mean there could be some one off items here and there, but there

is no real change otherwise.

Bhavna Jagwani: Right. And you had indicated of a CAPEX of about INR 2,000-2500 crores

in FY10. How much of that have we spent in Q1?

Lalit Jalan: About say INR 400 crores.

Bhavna Jagwani: And we still stick to this CAPEX right?

Lalit Jalan: That is right, CAPEX plus investment.

Bhavna Jagwani: I just had a question about Reliance Cementation what is the current

capacity?

Lalit Jalan: Zero.

Bhavna Jagwani: It is zero…?

Lalit Jalan: Yeah there is no operating plant. We have essentially signed MoUs with

few states for licenses and land and other things, but there is no capital

expenditure made so far.

Bhavna Jagwani: Right okay. And lastly under the open access regime, I am assuming we

have not lost any customers as of now?

Lalit Jalan: Not so far, but now going forward what you will find is that we are allowing

distribution open access which is different from the open access that was

envisaged in the Act and what the regulator has said that if the other

licensee wants to take a customer of mine, he will have to use my wires

and pay my wire charges. So going forward, even if several customers

were to move from the Reliance to the other licensee’s network, the entire

wire charges would come to our company and today the regulatory

returns is only on the wires. There is no return on the supply side. So the

profitability of the Bombay distribution would be fully protected.

Bhavna Jagwani: Right so no other company would most likely do that?

Lalit Jalan: No, I mean somebody who has access to cheaper power can take the

customer, but the wires would have to be paid to us.


Page 17 of 28

Bhavna Jagwani; Okay right. And could you give an update on your real estate projects,

because there were two in Hyderabad and Mumbai is there…?

Lalit Jalan: Yeah there is nothing substantial to report, it is pretty much the same what

we reported last quarter, there is no significant development, those

projects are with us and looking at the real estate scenario we are not

going aggressive on them and so that is where we are.

Bhavna Jagwani: Okay. And lastly, is there a particular reason we have paid lower tax in Q1

of last year?

Lalit Jalan: Yeah it was essentially MAT.

Bhavna Jagwani: We have paid less than that. We have barely paid about INR 5 crores.

Lalit Jalan: Yeah, but the adjustment would have been for previous years you know.

Bhavna Jagwani: So some previous year adjustments over here?

Lalit Jalan: Yeah.

Bhavna Jagwani: Alright, that will be all thanks a lot.

Moderator: Thank you Ms. Jagwani. The next question is from the line of Sumit

Agarwal from HSBC. Please go ahead.

Sumit Agarwal: Yeah sir, congratulations for good sets of numbers. Sir I have few queries,

one is about your cement business foray. Just wanted to know how much

you have paid for this 51% stake. And as well as what has been the

progress so far, you have mentioned that you have an aim of something

like a 20 million tonnes if I have to look at on the ground realities or what

has happened till date in terms of land acquisition and all that stuff. Can

you just throw some more light on that side?

Lalit Jalan: No, basically this is a business that Reliance Infra would be developing.

Until now essentially no capital expenditure has been spent. And we have

only paid the actual cost which has been spent up to now which is the

fixed cost. And essentially the plan is to develop these 20 million tonnes of

cement in the three states. And this will use the resources of coal, fly-ash

and power which is with our company Reliance Power and the cement


Page 18 of 28

could be integrated with the infrastructure needs of Reliance Infra. So that

is how the structuring has been done for Reliance Infra.

Sumit Agarwal: Sir how much have you paid for this 51% stake?

Lalit Jalan: It is a marginal amount it is the cost incurred by RNRL up till now.

Sumit Agarwal: And 49% would be owned by RNRL?

Lalit Jalan: We have bought the majority.

Sumit Agarwal: Okay fine. Also sir just wanted to understand about these two projects NK

Toll and the DS Toll. If I look at your last quarter that is FY09 press

release, it said that you are expecting commercial operations, okay. And

also this quarter also it says that you are awaiting commercial operation,

any reason for this delays or what is preventing the commercial

operation?

Lalit Jalan: No it is just getting of the actual COD certificate.

Sumit Agarwal: Because it is almost more than three months, how much time typically it

takes to get a COD?

Lalit Jalan: I mean it has taken us that time. The roads are ready, you can drive there

and in fact people actually stop at the tolling booth to pay toll and we tell

them no that it is free.

Sumit Agarwal: Yeah that is what you …

Lalit Jalan: Please you go there and you check the roads and it is a 4 lane road with

good greenery and no toll.

Sumit Agarwal: Okay. Sir what is the CBD Tower Private Limited that you have invested

something like a INR 163 crores …?

Lalit Jalan: That is the Hyderabad real estate project.

Sumit Agarwal: But you have recently said that not much progress has happened…?

Lalit Jalan: No we have to pay for land, right.

Sumit Agarwal: Okay so…?


Page 19 of 28

Lalit Jalan: That is the reason yeah.

Sumit Agarwal: And sir just wanted to understand what is your expectation in terms of the

recent tendering that you have come out with for the long term and the

medium term power so what are you expectations, do we expect the

power prices to increase as against what you are currently getting from

various sources?

Lalit Jalan: See, today if you look at the Mumbai distribution business, if I look at last

year actual, we had 40% of the power from our own Dahanu power plant,

which was at INR 2.45 and 30% we bought from Tata’s at an average

price of INR 4.83; the balance 30% we had to buy externally. And last

year was a time of very, very high prices and that cost us INR 8.96. Going

forward, we are trying to replace, all this high cost power with long-term

low cost power. The experiences of the last two years have shown that

long-term PPAs which have been done by the states have been closed

between INR 2.50-3.20 paisa per unit. So, we are hopeful that for a utility

like Bombay with the AAA customers, we should get a favourable rate.

Sumit Agarwal: Okay. Sir also you have mentioned that you have a total debt of

something like a INR 6,000 odd crores on your books, can I just know the

breakup in terms of how much is for the regulatory assets and how much

is for the other businesses?

Lalit Jalan: We do not give that breakup.

Sumit Agarwal: Okay fine, thanks a lot sir, thanks.

Moderator: Thank you Mr. Agarwal. The next question is from the line of Parag Gupta

from Morgan Stanley. Please go ahead.

Parag Gupta: Hi, good morning Mr. Jalan.

Lalit Jalan: Good morning.

Parag Gupta: Just two questions, firstly as far as the warrants money is concerned, did

the 25% upfront payment come in the 1st Quarter or has it come

subsequent to that?

Lalit Jalan: Subsequent in July.


Page 20 of 28

Parag Gupta: And what would be the exercise period of this warrants and when is that

effective?

Lalit Jalan: Eighteen months from July.

Parag Gupta: Okay. And finally on debt, your debt number has come off since 4Q is it

primarily again because of mark-to-market reductions or is it because of

debt repayment that has happened during the quarter?

Lalit Jalan: Debt repayment.

Parag Gupta: Okay thanks sir.

Moderator: Thank you Mr. Gupta. The next question is from the line of Pankaj

Sharma from UBS. Please go ahead.

Pankaj Sharma: Hi sir, good morning, as far as this Bombay Regulatory Business is

concerned, I just wanted to know one thing that for the cost which have

already been incurred till the end of FY2009 how much is the difference

between what we had proposed to recover and what regulator has

allowed, this is like considering the MERCs earlier order which was issued

in June that has allowed some tariff hikes?

Lalit Jalan: See there are two things, suppose the total recovery required is INR 100.

The regulator, one can say might allow you INR 90 so that is one piece of

it. The other is the 90 they might say that please recover 20 this year and

please recover the balance 70 over the next two years with carrying cost.

So that is to smoothen the tariff and not to give a tariff shock. So

disallowance is very marginal, but the INR 1,000 odd crores which was

the regulatory asset was to be recovered over the next three years.

Pankaj Sharma: Okay. So basically you mean to say that, there is not significant difference

like regulators has allowed almost everything?

Lalit Jalan: I mean because we have asked for reasonable things, because the

biggest part of a distribution is the cost of power. If you look at about INR

100 tariff that we get from our customers, more than INR 80 goes towards

cost of power. And cost of power is approved by the regulator. So, there is

nothing to disallow in that. So the rest remaining is only INR 20. In the INR

20, you have a broad breakup of about INR 10 towards cost and INR 10

towards interest, equity and taxes. So the actual disallowance is not


Page 21 of 28

much, the option of disallowance over the hundred is only, really the INR

10 is a fair cost. And if they have approved your last year cost then it is

only the 5% to 6% increase that you are asking.

Pankaj Sharma: Right, great. And the next question would be sir, like considering that now

the customers in the Bombay circle would have an option to choose either

you or another licensee, what do you see as your short-term and medium-

term power sourcing strategy for REL because as you were saying that

we want to procure at least 1,150 MW till next five years and then beyond

FY2014 probably 1,500 MW?

Lalit Jalan: Yeah, it will be little dynamic situation, it depends on how this open

access plays out and so depending on the flow of customers, because

see as the customers flow from the Reliance network to the other licensee

network, we stop buying that expensive INR 9 power for the customers

which move out. And the other licensee will have to buy the expensive

powers so his tariffs will go up in the next year. So there will be a natural

equalization of tariff, which we will move to as we move forward. And

going forward we will be replacing our high cost power with the lower cost

power from what we have bid for. So it will be little dynamic for the next

two to three years but on the long-term basis, we are very, very hopeful

that we will be getting the low cost power and together with a world-class

low cost distribution network, we will be able to get all our customers.

Pankaj Sharma: Right sir. So basically like from existing demand of let say 1,200 to 1250

MW, you expect a 2,000 MW kind of demand in FY2014 or so?

Lalit Jalan: Our current demand is almost like 1,500 and yeah we see the normal 5%

to 6% growth in it year-on-year.

Pankaj Sharma: Sure sir, great, thank you very much.

Moderator: Thank you Mr. Sharma. The next question is from the line of Vishal

Sharma from BNP Paribas. Please go ahead.

Vishal Sharma: Good morning sir. My question pertains to the objective behind issuing the

warrants to the promoters because you are already having almost about

INR 10,000 crores as cash. So what was the objective behind that

issuance?


Page 22 of 28

Lalit Jalan: As a corporate, we always believe in being cash-rich of all times. And in

the infrastructure businesses, the projects which come are very lumpy,

like as I told you we have four projects which are INR 20,000 crores worth

of investments, which might require up to INR 6,000 crores of equity from

our side. And we want to take part in all of the opportunities in the space

as they come. And that is the reason we always want to have ample

liquidity with us.

Vishal Sharma: Okay. And so INR 6,000 crores is the number that we should be looking at

in terms of equity infusion…?

Lalit Jalan: I mean I am talking typically on a 70-30 basis, if we can do it more

aggressive then that extent that much equity will become less.

Vishal Sharma: Okay. Now this let us say on our 70-30 basis, this should be over and

above the INR 2,000-2,500 crores that you have already committed?

Lalit Jalan: Absolutely.

Vishal Sharma: And approximately what part of that INR 2,000-2,500 crores should be

pure CAPEX and what should be pure equity investments?

Lalit Jalan: About half and half.

Vishal Sharma: Okay, great, thank you so much.

Moderator: Thank you Mr. Sharma. The next question is from the line of Bhavin

Mithlani from Enam Securities. Please go ahead.

Bhavin Mithlani: Good morning Mr. Jalan. My question is mainly on the Delhi distribution, I

actually miss the regulated equity which you give? The other is what

would be your regulated equity by the end of FY10 and given that we

have already overshoot our targets, what could be the incentive from the

Delhi distribution circle for Reliance Infra’s part in current fiscal?

Lalit Jalan: The total regulated equity as of end of FY09 is about more than INR 1,200

crores. These are in the regulator’s books. The incentives for the two

years of MYT we are hopeful of getting more than INR 200 crores every

year for the two Discoms and what was there a third question?

Bhavin Mithlani: And INR 1,200 crores is the 49% stake for Reliance Infra?


Page 23 of 28

Lalit Jalan: No that is the total equity of the Discoms.

Bhavin Mithlani: Okay. So we have to take effective stake in this case?


Bhavin Mithlani: Okay. And the third question is what the price of power at which, the

average purchase price for the Delhi Discoms?

Lalit Jalan: Delhi Discom today is paying, of course it is slightly different for all of the

three Discoms, but last year I would say that the average price that the

Delhi Discom paid was about INR 2.85 paisa. And that is the reason why

the tariffs in Delhi are so much lower.

Bhavin Mithlani: Okay. And from the long-term tender we have just floated, we believe that

we can reduce the price of power for Mumbai from INR 6.5 what we are

paying currently to roughly around INR 3 per unit?

Lalit Jalan: We are very hopeful, I mean looking at the last one year experience and

given the fact that we would be a good customer for any generators in

terms of credit risk, we think that we should get the best rates that are

available in the market. And with the new generation capacities which are

coming up, we are very hopeful of getting a good rate and this INR 6.5

plus that we are paying today for the mix of power today including our

Dahanu Power should definitely go up to INR 3 in the next five years.

Bhavin Mithlani: Okay. And my last question is I have seen the PLF of the other power

stations mainly the gas based station going up, would it be possible to

quantify the increasing profits from these power station on account of

increase in the PLF?

Lalit Jalan: Yeah we can give you offline, yeah because of the additional gas that we

get it helps us also on the heat rate so it is a reasonable increase for us.

Bhavin Mithlani: Any, means if an all on a ballpark basis you can give a quantum

proportion contributed to the increasing profits for the quarter ..?

Lalit Jalan: Just speak to Mr. Gupta, he will give you the exact number.

Bhavin Mithlani: Okay fine, thank you very much.


Page 24 of 28

Moderator: Thank you Mr. Mithlani. The next question is from the line of Madan Gopal

from Centrum Broking. Please go ahead.

Madan Gopal: Good morning sir, thanks for taking my question. My question was relating

to the recent speculation that the Alstom has denied Shanghai Energy

Corporation to supply boilers outside China and we have an long-term

agreement with SEC for supplying to our Reliance Power projects so what

is our management’s take on this?

Lalit Jalan: We have been assured by our counterparts SEC that they have the

requisite licenses to supply to India and we have seen the papers and we

are quite assured.

Madan Gopal: Okay, thank you sir.

Moderator: Thank you Mr. Gopal. The next question is from the line of Shirish Rane

from IDFC SSKI. Please go ahead.

Shirish Rane: Good morning sir.

Lalit Jalan: Good morning.

Shirish Rane: Sir just on this open access thing, whenever any other utility takes away

your customer, there would be two charges as I understand, one would be

the wire charges and there has to be cross subsidy surcharge, because

as I understand in open access the other utility would target all your very

good bulk customers. So in that sense has anything being notified or you

think a cross subsidy surcharge will not come in the open access era?

Lalit Jalan: No, it is a very, very good question and I think I will take this opportunity to

explain to all you people. See when we started the open access era that

open access era was for the so-called large customers which were above

1 MW. We have 85 such customers in our Mumbai area. And the idea that

they would seek open access from say another generator and get that

power in and replace our power. So that time in a desire to make open

access a reality, the regulatory body that time thought that since the

marginal cost of power is INR 7-8 and the marginal tariff is also that time

three years back was INR 7-8, he put in the order that there will be no

cross subsidy charge because if INR 8 customer goes your INR 8 power

purchase also goes with it. So that was the logic and in this order he had

mentioned that if there is a large flow of customers which has an adverse


Page 25 of 28

impact on the utility, he will include the cross subsidy charge in

subsequent orders. Most of the state utilities have put a cross subsidy

charge. Now since the situation has changed and every single customer

in our area which is 2.7 million customers are technically allowed

distribution open access right the other utility does not have a choice to

pick and choose. They will have to supply to each and every customer

who applies to him in 30 days flat. We are also writing to the regulator to

avoid any cash flow fits to us to include a cross subsidy surcharge include

that now because this is a different time, because it is no longer only for

the large customers and you can see only one or two or three or five

customers moving away. Here you can have mass movements and it can

happen that in the short period, more of the larger customers we move, so

which can then have of course you will get it in the truing up but it can

have a short-term cash flow impact to the incumbent utility. So we are

applying to them for the cross subsidy surcharge.

Shirish Rane: The second part of the question which you rightly said that is there is a

certain amount of customer moves then automatically your tariff comes

down because you do not purchase the high cost power. I mean what kind

of balance is this, I mean would it be about 200 MW of power to move out

down so that your tariff will come down or you think you need about less

then that of some customers moving out so that your average purchase

power cost can come down. I am thinking purely from a tariff for the retail

customer standpoint because that seems to be the biggest issue right

now.

Lalit Jalan: See about 30% of our power is bought outside today. Secondly, you have

customer which only buy it during the peak period, so you will have about

250 MW, about 20% of the consumption if they move out then that takes

away all your expensive power.

Shirish Rane: So effectively you are saying it is theoretically 20% of customers were to

shift to some other alternative utility. The tariff can be materially different

from what it is today?

Lalit Jalan: Yeah and also the other utilities, tariff will go up.

Shirish Rane: Obviously I mean I understand.

Lalit Jalan: They have to buy this power from outside.


Page 26 of 28

Shirish Rane: Either it will depend on their access to the power basically.

Lalit Jalan: Nobody has access, see because all the power that we are buying for

Bombay is bought by all of the utilities together. So it is not that we are

buying something at INR 9 and somebody has access to INR 6 because if

somebody had access to INR 6 power that INR 6 would have been

available to us. So because we want to give 24x7 power to Mumbai,

which in other cities and other urban areas the utility keeps the price low

by resorting to load shedding, so they do not buy the high cost power

even if you look at a utility like Calcutta, they do not have power they will

not buy the power. So then the tariffs remain lower. But in Mumbai and

Delhi, we provide 24x7 powers because the consumers wanted and they

are willing to pay for the reliability. Also, if you look at the alternate side, if

a consumer does not have two to three hours power and which is not also

well-defined as to exactly what time he will not have the power, forget

about the quality of life difference, if you look at every other city outside

Mumbai, every household has got generator, invertors, lead acid

batteries, voltage stabilizers and what have you. There is a huge cost to it,

I have been to houses where they have huge UPS banks, put in their

houses and so if you look at the environmental impact also if you have an

inverter it consumes two units to give you one unit back. So there is a

wastage of electricity you are also paying double the cost of electricity

during the time when you are getting it from the inverters you are paying

the AMC charges so it’s a huge cost.

Shirish Rane: Sir the last question is under…

Lalit Jalan: And I will just give you one more example in Delhi there is an area called

Sainik Farms which was not allowed to be electrified by us owing to a

court order. And the Sainik Farm which is almost 600 MW of demand,

sorry 60 MW of demand, the consumers there were paying INR 14 a unit

and they are still paying today INR 14 a unit in the middle of Delhi, where

just outside Sainik Farm the consumer pays INR 4, but inside Sainik Farm

he pays INR 14. And these are all run through diesel gensets by operators

and they provide power to all these posh houses in Sainik Farms.

Shirish Rane: Good point sir, sir the last question is on the medium term procurement for

the next say 4 to 5 years, as you rightly pointed out there does not seem

to be any short term power available below the rates you, what I assume

you have done the most efficient way of procuring the power. So do you


Page 27 of 28

think just by going through the medium term purchase root for 5 years

would you get significantly lower cost of power or it is more from a

regulatory standpoint you want to earlier medium term procurement

guidelines?

Lalit Jalan: Very good question, I think both the points are right, one is the regulatory

environment does not allow you to buy more than one year power without

bidding so that is one part of it and the other part is we are seeing a spate

of merchant power plants which are or new capacities which are coming

up over the next two years, a spate of plant and all you people are

covering several private utilities which are coming out with lots and lots of

capacity which are untied. Now we provide a great opportunity for a power

plant coming in say this year or early next year or middle of next year to

supply us for two to three years of medium term power at a slightly better

rate, and then they can apply also for long-term power supply, in the long

term power belt, because long-term the INR 3 kind of benchmark is pretty

much there but in this medium term, you had utilities today you know they

are selling on a day-to-day basis, but they get a reliability of selling say at

hypothetically whatever number INR 4.5 for reliable 24x7 power with the

AAA wire, I mean they would look at it so if you see the short term rates

have crashed again, these things fluctuates so widely, the last few days in

monsoons we have been buying at INR 3.5.

Shirish Rane: Sure, just to complete this discussion, there has not been any medium

term procurement in the country so far, this would be the first one, right?

Lalit Jalan: To my knowledge.

Shirish Rane: You said you will set a benchmark for it, I mean I am just trying to go by

the way for a long-term purchase power there is a benchmark of around

INR 3, is there something very similar for a medium term in any other

utility which you know of?

Lalit Jalan: Yeah to my knowledge this is the first utility which has come out with the

medium terms belt, also we have a first private distribution licensee which

has come out with the long-term belt. It has taken us one year to get the

approval from the regulator because they have to go through the public

hearing process and everything but they now hope to close this process

by September end.


Page 28 of 28

Shirish Rane: Sir and just one final question, sorry to ask too many questions, sir this

MERC orders stay I mean I do not understand the legality of it because

how can somebody stay his own order which was given about a month

back, I mean is it, I mean is there a legal, you must have taken some legal

opinions on it.

Lalit Jalan: Shirish I mean, you know everything so let us leave it at that.

Shirish Rane: Fair point sir, thank you very much sir.

Moderator: Thank you Mr. Rane. Ladies and gentleman that was the last question of

today. I would now like to hand the conference over to the management

for final comments. Please go ahead sir.

Lalit Jalan: No, I think we have covered everything. I would profusely thank all friends

who have taken time off to be on our conference call. And we can assure

you from the management side that we are working round the clock to

create shareholder returns and we will apprise you of any development

hopefully more positive then negative as they occur. And thank you once

again.

Moderator: Thank you Mr. Jalan, thank you Mr. Shankar K. Ladies and gentleman.

On behalf of Edelweiss Securities Limited that concludes this conference

call. Thank you for joining us and you may now disconnect your lines.

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Reliance Infrastructure Limited Conference Call Q1FY10 Results

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