RESULT UPDATE

RELIANCE INFRASTRUCTURE
Order inflow ebb sours growth
India Equity Research| Power
EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector Risk Rating Relative to Sector Sector Relative to Market BUY Outperformer Medium Underweight

Reliance Infrastructure (RELI) reported standalone PAT of INR6.6bn, but adjusting for tax write-back of ~INR2bn and prior period depreciation, earnings were in line. Superior execution in EPC vertical continued; however, with delay in approvals for customers projects, limited revenue visibility (INR173bn order book is 1.5x FY12 revenue) and challenges in acquiring new orders due to regulatory issues, we have lowered EPC revenues/margins. Regulatory issues post the recent equity infusion in Delhi discoms have been addressed and over the next 12-15 months almost all infrastructure projects will be fully operational. Maintain BUY with revised TP of INR936/share(INR1,267 earlier).

MARKET DATA (R: RLIN.BO, B: RELI IN) CMP Target Price 52-week range (INR) Share in issue (mn) M cap (INR bn/USD mn) : INR 464 : INR 936 : 680 / 328 : 263.0 : 122 / 2,203

EPC margins lift earnings

EPC posted higher revenue at INR43.9bn (47% revenue growth QoQ and 355% YoY) along with margins at ~10.4% against 7-9% guidance. The company awaits final tariff orders in Mumbai and Delhi, which could enhance earnings due to upward revision of regulated equity on deferred revenues, open access charges and capital restructuring.

Avg. Daily Vol.BSE/NSE(000) : 2,205.8 SHARE HOLDING PATTERN (%)

Others 15.1% FIIs 15.1%

Delhi Metro traffic improving; infra project execution augments

The company has one metro and five operational road projects; it expects to operationalise the balance metro (one) and five road and projects over the next 15 months. This will minimise execution risk and also aid cash flows. In Delhi Metro, passenger flow has surged from 4,000/day to 20,000/day over the past four quarters.

Promoters* 48.5%

Outlook and valuations: Risks mitigated; maintain BUY

We believe that most of the operational risks are getting addressed while management is being prudent in choice of infra assets bidding/acquisition, leading to better investor confidence on value accretion on retained earnings/surplus cash (including share buyback). However, due to limited revenue visibility and challenges in acquiring new orders due to clearance issues, we have revised EPC earnings/margins down, leading to 2% and 6% cut in FY13E and FY14E PAT, respectively. This alongwith ~20% decline in Reliance Power CMP (~38% stake) resulted in revised target price of INR936/share (INR1,267 earlier). Maintain BUY/Sector Outperformer.
Financials (Standalone) Year to March Revenues Total expenditure EBITDA Rep. net profit EBITDA margins (%) NPM (%) Diluted EPS (INR) Diluted P/E (x) ROAE (%)
Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

MFs, FIs & Banks 21.2%

* Promoters pledged shares (% of share in issue) : NIL

PRICE PERFORMANCE (%) Stock 1 month 3 months 12 months (24.6) (29.2) (21.1) Nifty (7.7) (12.1) (9.8) EW Power Index (15.2) (24.4) (24.9)

(INR mn) FY12E FY13E FY14E 23,298 20,686 2,613 4,988 11.2 21.4 146.0 147.2 136.3 32.0 44,777 38,259 6,518 4,158 14.6 9.3 28.0 33.7 (5.3) 58.3 179,067 156,724 157,472 152,318 135,686 137,089 26,749 17,797 14.9 9.9 76.0 6.1 11.0 21,037 13,224 13.4 8.4 50.3 9.2 6.9 20,383 13,324 12.9 8.5 50.7 9.2 6.6

Q4FY12 Q4FY11 % Change Q3FY12 % Change 57,316 51,143 6,173 6,582 10.8 11.5

Shankar.K
+91 22 4040 7412 shankar.k@edelcap.com

Parvez Akhtar Qazi

+91 22 4063 5405 parvez.qazi@edelcap.com

May 25, 2012

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Power
Other highlights
Prior period depreciation write-back of INR152.3mn and INR559.6mn aided Q4FY12 and FY12 PAT, respectively. Management expects higher retail rentals and advertising income to yield INR1bn and INR2bn revenues in Delhi Metro in FY13E and FY14E, respectively.

Table 1: SOTP Business Power R Power Metros Roads Transmission projects Net cash Total

Method P/BV - 1.6x Regulated Market cap FCFE FCFE FCFE

INR/share 162 305 181 141 22 126 936

Source: Edelweiss research

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Reliance Infrastructure
Financial snapshot Year to March Net revenues Total operating income Cost of goods sold Fuel cost Salaries,wages, other payments Other expenses EBITDA Depreciation Other income Interest Profit before tax Tax Core profit Adjusted net profit No. of shares (mn) Diluted EPS (INR)
As % of net revenues COGS Other expenses Total expenses EBITDA Adjusted net profit Tax rate

Q4FY12 56,740 57,316 44,306 4,081 1,362 1,394 6,173 736 1,685 1,832 5,290 (1,292) 6,582 6,430 264 25.0

Q4FY11 22,099 23,298 13,707 3,573 1,875 1,530 2,613 724 2,815 629 4,075 (913) 4,988 3,187 267 18.6

% Change 156.8 146.0 223.2 14.2 (27.4) (8.9) 136.3 1.7 (40.1) 191.3 29.8 NA 32.0 101.7 33.9

Q3FY12 44,761 44,777 30,489 3,687 1,905 2,178 6,518 615 1,468 1,231 6,140 1,982 4,158 4,158 264 15.8

% Change 26.8 28.0 45.3 10.7 (28.5) (36.0) (5.3) 19.6 14.7 48.8 (13.8) NA 58.3 54.6 58.3

FY12 179,067 179,067 121,969 15,487 7,405 7,458 26,749 2,678 6,587 5,681 24,978 4,975 20,003 17,797 263 76.0

FY13E 156,724 156,724 105,500 14,440 7,836 7,910 21,037 3,218 6,145 4,799 19,165 5,941 13,224 13,224 263 50.3

(INR mn) FY14E 157,472 157,472 106,220 14,830 7,874 8,166 20,383 3,318 6,828 4,583 19,310 5,986 13,324 13,324 263 50.7

77.3 11.9 89.2 10.8 11.2 (24.4)

58.8 30.0 88.8 11.2 13.7 (22.4)

68.1 17.4 85.4 14.6 9.3 32.3

68.1 8.3 85.1 14.9 9.9 19.9

67.3 10.0 86.6 13.4 8.4 31.0

67.5 10.2 87.1 12.9 8.5 31.0

Edelweiss Securities Limited

Power
Company Description
Reliance Infrastructure (RELI) is an Anil Dhirubhai Ambani Group company, involved in infrastructure projects, power EPC projects, and generation, transmission and distribution of electricity. In the infrastructure space, it has a portfolio of 11 road projects on a build-operate-transfer (BOT) basis. This division is involved in the development of metro rail projects in Mumbai and Delhi. The EPC division presently has an order book of over INR 173 bn, comprising EPC and balance of plant (BoP) power projects. In the utility space, it distributes more than 28 bn units of electricity to cover 25 mn consumers across different parts of the country, including Mumbai and Delhi, in an area that spans over 1,24,300 sq km. It generates 941 MW of electricity through its power stations located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa. The company holds 38% in Reliance Power that plans to have a portfolio of 32 GW of generating asset.

Investment theme

We believe the company will emerge as a major power EPC player in the next few years, benefiting from the large addressable market to be created by the addition of ~100,000 MW in the 12th Plan. Further, it holds a stake in Reliance Power and thus has the opportunity to invest in the entire power space, ranging from generating asset development to building transmission assets and power EPC. RELI is developing various road and metro projects besides bidding for various infrastructure projects. This space too, like power, is expanding in a big way with a potential market size of USD 494 bn. The company, being a part of ADAG, plans to be a major player in the infrastructure segment by owning assets on a BOT basis and leveraging its financial and technical strengths.

Key risks

There have been changes in margins from the EPC business in the past one year due to the volatility in commodity prices and high interest rates. While we understand that RELI has entered into back-to-back contracts to minimize the margin erosion, the scale and timing of projects could expose the company to execution risks. The road traffic growth has been dented due to the depressed industrial growth and weak macro environment. This, in addition to any delay in execution of infrastructure projects, could impact valuations. The company has parked a sizeable part of its investments in group entities and yield bearing instruments. Since other income contributes significantly to the total earnings of the company, any diminution in the value of the same could impact valuations.

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Reliance Infrastructure

Financial Statements
Income statement Year to March Income from operations Direct costs Employee costs Other expenses Total operating expenses EBITDA Depreciation and amortisation EBIT Other income Interest expenses Profit before tax Provision for tax Core profit Extraordinary income/ (loss) Profit after tax Profit after minority interest Basic shares outstanding (mn) Basic EPS (INR) Diluted equity shares (mn) Diluted EPS (INR) Dividend per share (INR) Dividend payout (%) Common size metrics - as % of net revenues Year to March Operating expenses Depreciation Interest expenditure EBITDA margins Net profit margins Growth ratios (%) Year to March Revenues EBITDA PBT Net profit EPS FY10 98,897 79,584 4,649 5,758 89,991 8,906 3,198 5,708 10,184 2,922 12,969 1,453 11,517 1,938 13,455 13,455 245 47.0 245 47.0 7.1 15.1 FY11 94,148 73,655 5,808 6,293 85,755 8,393 3,134 5,259 8,517 2,425 11,351 541 10,809 445 11,254 11,254 267 40.4 267 40.4 7.2 17.7 FY12 179,067 137,455 7,405 7,458 152,318 26,749 2,678 24,071 6,587 5,681 24,978 4,975 20,003 (2,205) 17,797 17,797 263 76.0 263 76.0 12.2 16.0 FY13E 156,724 119,940 7,836 7,910 135,686 21,037 3,218 17,819 6,145 4,799 19,165 5,941 13,224 13,224 13,224 263 50.3 263 50.3 8.0 16.0 (INR mn) FY14E 157,472 121,050 7,874 8,166 137,089 20,383 3,318 17,066 6,828 4,583 19,310 5,986 13,324 13,324 13,324 263 50.7 263 50.7 8.1 16.0

FY10 91.0 3.2 3.0 9.0 11.6

FY11 91.1 3.3 2.6 8.9 11.5

FY12 85.1 1.5 3.2 14.9 11.2

FY13E 86.6 2.1 3.1 13.4 8.4

FY14E 87.1 2.1 2.9 12.9 8.5

FY10 2.0 75.8 (7.2) (14.3) (14.3)

FY11 (4.8) (5.8) (12.5) (6.1) (14.1)

FY12 90.2 218.7 120.1 85.1 88.2

FY13E (12.5) (21.4) (23.3) (33.9) (33.9)

FY14E 0.5 (3.1) 0.8 0.8 0.8

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Power
Balance sheet As on 31st March Equity capital Reserves & surplus Shareholders funds Secured loans Unsecured loans Borrowings Others Sources of funds Gross block Depreciation Net block Capital work in progress Total fixed assets Investments Inventories Sundry debtors Cash and equivalents Loans and advances Total current assets Sundry creditors and others Provisions Total current liabilities & provisions Net current assets Uses of funds Book value per share (INR) Free cash flow Year to March Net profit Depreciation Deferred tax Others Gross cash flow Less: Changes in WC Operating cash flow Less: Capex Free cash flow Cash flow metrics Year to March Operating cash flow Investing cash flow Financing cash flow Net cash flow Capex Dividends paid (INR mn) FY14E 2,630 205,079 207,709 12,850 88,399 101,249 4,495 313,453 105,137 52,291 52,846 18,157 71,003 127,851 3,626 40,150 12,763 162,743 219,282 98,396 6,286 104,682 114,600 313,453 789.7 (INR mn) FY14E 13,324 3,318 16,642 5,554 11,087 11,087

FY10 2,449 149,073 151,522 14,750 26,399 41,149 1,577 194,248 74,283 39,511 34,771 5,549 40,320 100,196 2,692 33,457 3,018 80,853 120,019 56,467 9,820 66,287 53,732 194,248 618.7

FY11 2,675 174,001 176,675 15,839 23,854 39,693 990 217,358 105,137 43,078 62,060 6,493 68,552 125,841 2,903 48,579 3,711 105,748 160,940 125,114 12,861 137,975 22,965 217,358 660.5

FY12 2,630 182,779 185,409 95,293 45,484 140,776 4,495 330,680 105,137 45,755 59,382 18,157 77,539 127,851 3,094 45,656 6,861 172,796 228,407 97,043 6,073 103,116 125,291 330,680 704.9

FY13E 2,630 193,886 196,517 17,850 86,399 104,249 4,495 305,261 105,137 48,973 56,164 18,157 74,321 127,851 3,464 39,959 6,807 153,382 203,612 94,478 6,044 100,522 103,090 305,261 747.1

FY10 13,455 3,198 (362) 6,083 22,374 12,470 9,904 4,960 4,943

FY11 11,254 3,134 (587) (732) 13,069 (31,459) 44,528 31,798 12,730

FY12 17,797 2,678 2,205 22,680 99,175 (76,495) 11,664 (88,159)

FY13E 13,224 3,218 16,442 (22,147) 38,589 38,589

FY10 9,904 5,124 (14,519) 508 (4,960) (2,034)

FY11 44,528 (48,927) 3,651 (748) (31,798) (2,230)

FY12 (76,495) (7,087) 81,447 (2,134) (11,664) (3,200)

FY13E 38,589 6,145 (44,788) (54) (2,116)

FY14E 11,087 6,828 (11,959) 5,956 (2,132)

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Reliance Infrastructure
Profitability & efficiency ratios Year to March ROAE (%) ROACE (%) Debtors days Current ratio Debt/EBITDA Fixed asset turnover (x) Average working capital turnover Average capital employed turnover (x) Debt/Equity Adjusted debt/equity Operating ratios Year to March Total asset turnover Fixed asset turnover Equity turnover Du pont analysis Year to March NP margin (%) Total assets turnover Leverage multiplier ROAE (%) Valuation parameters Year to March Diluted EPS (INR) Y-o-Y growth (%) CEPS (INR) Diluted PE (x) Price/BV (x) EV/Sales (x) EV/EBITDA (x) Dividend yield (%) Basic EPS Basic P/E (x) FY10 8.5 6.8 90 1.8 4.6 2.9 2.3 0.5 0.3 0.3 FY11 6.6 5.7 159 1.2 4.7 1.9 2.5 0.5 0.2 0.2 FY12 11.0 16.4 96 2.2 5.3 2.9 2.4 0.7 0.8 0.8 FY13E 6.9 9.4 100 2.0 5.0 2.7 1.4 0.5 0.5 0.5 FY14E 6.6 9.4 93 2.1 5.0 2.9 1.4 0.5 0.5 0.5

FY10 0.5 2.9 0.7

FY11 0.5 1.9 0.6

FY12 0.7 2.9 1.0

FY13E 0.5 2.7 0.8

FY14E 0.5 2.9 0.8

FY10 11.6 0.5 1.4 8.5

FY11 11.5 0.5 1.3 6.6

FY12 11.2 0.7 1.5 11.0

FY13E 8.4 0.5 1.7 6.9

FY14E 8.5 0.5 1.5 6.6

FY10 47.0 (14.3) 58.6 9.9 0.7 0.5 5.8 1.5 47.0 9.9

FY11 40.4 (14.1) 49.9 11.5 0.7 0.4 4.1 1.5 40.4 11.5

FY12 76.0 88.2 86.2 6.1 0.7 0.7 4.8 2.6 76.0 6.1

FY13E 50.3 (33.9) 62.5 9.2 0.6 0.6 4.3 1.7 50.3 9.2

FY14E 50.7 0.8 63.3 9.1 0.6 0.5 4.0 1.7 50.7 9.1

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RATING & INTERPRETATION

Company
Adani Enterprises Adani Power GMR Infrastructure JSW Energy Marg NTPC PTC India Tata Power Co

Absolute reco
BUY REDUCE BUY HOLD BUY HOLD BUY BUY

Relative reco
SP SU SP SO None SU None SO

Relative risk
M M H H None L None L

Company
Adani Ports and Special Economic Zone CESC GVK Power and Infra Lanco Infratech Navabharat Ventures Power Grid Corp of India Reliance Infrastructure

Absolute reco
BUY BUY HOLD BUY BUY BUY BUY

Relative reco
SO SU SU SU None SO SU

Relative Risk
M H H H None L M

ABSOLUTE RATING
Ratings Buy Hold Reduce Expected absolute returns over 12 months More than 15% Between 15% and - 5% Less than -5%

RELATIVE RETURNS RATING

Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING
Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return

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Reliance Infrastructure
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098. Board: (91-22) 4009 4400, Email: research@edelcap.com
Vikas Khemani Nischal Maheshwari Head Institutional Equities Co-Head Institutional Equities & Head, Research vikas.khemani@edelcap.com nischal.maheshwari@edelcap.com +91 22 2286 4206 +91 22 4063 5476

Coverage group(s) of stocks by primary analyst(s): Power

Adani Power, Adani Enterprises, Adani Ports and Special Economic Zone, CESC, GMR Infrastructure, GVK Power and Infra, JSW Energy, Lanco Infratech, Marg, Navabharat Ventures, NTPC, PTC India, Power Grid Corp of India, Reliance Infrastructure, Tata Power Co

Recent Research Date 24-May-12 Company Tata Power Adani Enterprises Adani Power Title Mundra UMPP Supercritical ; Result Update Lower coal trading dents business; Result Update Short on fuel; Result Update Price (INR) 89 Recos Buy

21-May-12

239

Buy

18-May-12

51

Reduce

Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Rating Distribution* * 1 stocks under review > 50bn Market Cap (INR) 114 104 Hold 60 Reduce 18 Total 183 < 10bn 11 Rating Interpretation Rating Buy Hold Reduce 58 Expected to appreciate more than 15% over a 12-month period appreciate up to 15% over a 12-month period depreciate more than 5% over a 12-month period

Between 10bn and 50 bn

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Power
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