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Reliance Infrastructure needs power to spur growth

Source : BUSINESS_STANDARD
Last Updated: Thu, Jan 03, 2013 20:00 hrs
A labourer works at the construction site of a flyover on the outskirts of the western Indian city of Ahmedabad

Reliance Infrastructure is dogged by uncertainties on its three key Metro Railway projects, two of which are in Mumbai and the third in Delhi. The final decision on its Mumbai Metro phase II project (32 km) worth Rs 11,000 crore is pending due to lack of substantial progress. Earlier, in September 2012, the company had announced its exit from the Rs 5,100-crore Worli-Haji Sea Link project.

Also, its Delhi Airport Metro Express project, awarded in January 2008, is shut since July 8 last year due to defects detected. However, the company says the project is not financially viable as ridership (read traffic) is lower than the break-even threshold and needs to be financially restructured. The matter has been sent for arbitration and a decision is expected soon on this as well. It is quite likely the company may exit this project, too.

Though these might sound like bad news, analysts have taken it positively. "Nobody had valued Mumbai Metro II and Worli Haji Sea Link in sum-of-parts valuation as there was no traction in these projects. Even Delhi Metro makes sense only if the company is able to develop the surrounding real estate parcels, which is not happening. If these projects are cancelled then it is positive as the company can be focussed and divert equity to better projects," says an analyst.

MUTED SHOW
In Rs crore FY12 FY13E FY14E
Revenues 24,272 20,622 22,238
% ch y-o-y 60.4 -15.0 7.8
Operating profit 2,783 2,841 3,461
% ch y-o-y 85.7 2.1 21.8
Net profit 1,587 1,617 1,733
% ch y-o-y 2.3 1.9 7.2
E: Estimates
Consolidated numbers
Source: Company, analyst reports

The company's businesses, except EPC, are doing well and it will continue to do so as many pending projects get operational this year. Six out of nine power transmission lines of the WRSS project are generating revenue and the company expects these to be fully operational by FY13-end. After a 21 per cent tariff hike in Delhi region, tariff revision process for Mumbai region is likely to be approved shortly. Further, out of 11 road projects (1,000 km), eight are generating revenue and two more are expected to be commissioned by FY13-end. The first phase of Mumbai Metro is expected to be commissioned by FY13-end. While the five-million-tonnes cement plant at Butibori (Nagpur, Maharashtra), is operational, the Madhya Pradesh unit is expected to go operational by FY14-end.

EPC business is a concern with order book position declining to Rs 13,910 crore in Q2 from Rs 15,560 crore in Q1 and Rs 17,300 crore since the beginning of FY13, thanks to completion of some active projects. Its share in consolidated revenues has also come down from 45 per cent in FY12 to 33 per cent in the first half.

All hopes are pinned on the company's subsidiary, Reliance Power. But the latter's near-term large projects, namely Tilaiya, Chirangi and Krishnapatnam, are stuck due to various reasons.

Says Abhishek Puri, analyst, Deutsche Bank Markets Research, in his December 6 report on Reliance Power, "We have assumed one- to two-year delay in project commissioning of Samalkot, Krishnapatnam, Tilaiya and Chitrangi projects due to fuel, land and clearance issues in the interim."

Reliance Power: Challenges continue
Nearly 30 per cent of fuel supply for Rosa (1,200 Mw) is met through costly imports while the rest comes from Coal India Ltd (CIL). CIL supplies were low in Q2 and hence led to lower plant load factor and plant availability factor year-on-year, though analysts expect an improvement in the second half. Nalin Bhatt, analyst, Motilal Oswal, says in his December 4 report on Utilities, "Visibility on fuel supply (CIL linkage) is poor and power purchase agreement is signed only for part capacity." Though the plant has a cost plus arrangement and thus provides complete pass through, it still carries an offtake risk in the event of tariff hike.

On Wednesday, the company said it has commissioned the second unit of the Butibori plant (2&300 Mw).

While announcement of commissioning of the first unit of 6&660 Sasan ultra mega power project (UMPP) is expected anytime soon and diversion of excess coal from mines allocated for Sasan to other projects (Chirangi) are near-term positives, Krishnapatnam UMPP put on hold due to delay in production at Indonesian mines and scarcity of gas affecting the commissioning of Samalkot (2,400 Mw) project are negatives. Getting clearance for expansion of Sasan UMPP by 1,980 Mw, stage 2 clearance of the Chhatrasal mine, construction start at Chitrangi and Tilaiya coal mine land acquisition are long-term positives.


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