2009-08-24 (Daiwa Sec) Reliance Infrastructure (1) ... Nts The Growth Potential.i

Company Report
24 August 2009 (No. of pages: 34)
Reliance Infrastructure
(RELI IN)
Utilities: India
6-mth rating:
Target price: Rs1,029.00 (-9.6%) Share price: Rs1,137.75 (24 Aug)
Jaideep Goswami
(91) 22 6622 1010 jaideep.goswami@in.daiwasmbc.com
Jonas Bhutta
(91) 22 6622 1008 jonas.bhutta@in.daiwasmbc.com
Saurabh Mehta
(91) 22 6622 1009 saurabh.mehta@in.daiwasmbc.com
Initiation of coverage: valuation discounts the growth potential

Transition phase; initiate coverage with a 3 (Hold) rating We initiate coverage of Reliance Infrastructure (RELI) with a 3 (Hold) rating. The company is evolving from a power utility to a full-fledged infrastructure conglomerate. Its power-transmission and infrastructure asset-ownership businesses have long-term potential, although they are at the investment phase currently. Reliance Power (RPWR) is the key valuation driver RELIs 45% stake in RPWR (RPWR IN, Rs158.70, Not rated) contributes 42% of our sum-of-the-parts (SOTP) valuation. Thus, RPWRs fair value should be the main driver of RELIs stock performance. RPWR has a pipeline of 33.74GW of powergeneration projects. Timely execution of these could be a challenge, and they are unlikely to contribute meaningfully to earnings before FY12, in our view. SOTP-based target price of Rs1,029 We assume that RELI will meet its project-completion schedule. We forecast an engineering, procurement and construction (EPC) business revenue CAGR of 40% for FY10-12, with an EBITDA margin of 8%. We see the upside trigger for the stock as winning new BOT projects, and the downside risks as execution delays and an unfavourable outcome in the pending court case.
Income summary
Year to 31 Mar 2008 2009 2010E 2011E 2012E Revenue (Rs m) 63,642 96,965 97,791 117,851 143,947 (%) 11.5 52.4 0.9 20.5 22.1 EBITDA (Rs m) 5,463 5,065 11,913 13,680 15,820 (%) 9.8 (7.3) 135.2 14.8 15.6 Net profit (Rs m) 10,846 11,389 13,247 14,216 15,730 EPS (%) 35.3 5.0 16.3 7.3 10.6 (Rs) 46.034 50.378 58.803 63.108 69.826 (%) 23.7 9.4 16.7 7.3 10.6 CFPS (Rs) 10.483 39.485 162.652 45.565 120.847 DPS (Rs) 6.269 6.975 8.232 8.835 9.776 Reuters code RLIN.BO 15,628.75 (US$bn) 5.27 (US$bn; 10E) 6.3 (US$m) 104.88 (m) 225 (%) 62.3 AAA Project Ventures (37.1%) Rs/US$ 48.615 1M (2.7) (4.2) 3M 1.5 (9.8) 6M 132.5 31.3
Market data
SENSEX Index Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative
Source: Daiwa Note: *Relative to SENSEX Index
Investment indicators
PER PCFR EV/EBITDA PBR Dividend yield ROE ROA Net debt equity
Source: Daiwa forecasts
(x) (x) (x) (x) (%) (%) (%) (%)
2010E 19.3 7.0 25.7 1.8 0.7 10.2 5.1 35.6
2011E 18.0 25.0 22.4 1.7 0.8 9.7 5.1 44.7
2012E 16.3 9.4 19.4 1.5 0.9 9.9 5.3 35.7
Price and relative performance
Source: Bloomberg, Daiwa
Source: Company, Daiwa forecasts Note: The investment indicators and income summary on the front page of this report, as well as the back-page financial summary, are all based on the forex assumptions set out in the table at the back of this report, unless stated otherwise.
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT.
Global Equity Research
Contents
Investment summary .........................................................................................................3 Transitioning from pure utility to an infrastructure conglomerate ...................................5 Reliance Power is the key valuation driver.......................................................................6 Valuation...........................................................................................................................8 What would drive the stock up or down? .........................................................................9 Generation assets and the Mumbai licence area .............................................................10 Delhi distribution area.....................................................................................................12 Transmission projects .....................................................................................................13 EPC division revenue CAGR of 40% for FY10-12E .....................................................14 Roads...............................................................................................................................16 Metro-rail projects early-mover advantage..................................................................18 Reliance Power 33.74GW of projects in the pipeline..................................................21 Implementation holds the key.........................................................................................22 Valuations .......................................................................................................................24 Appendix I update on Reliance Power projects...........................................................26
Jaideep Goswami (91) 22 6622 1010
Investment summary
We initiate coverage of RELI with a 3 rating as: 1) We believe the macro outlook is positive for the power and infrastructure sectors in terms of emerging opportunities, the governments renewed focus on infrastructure, and the improvement in the availability of credit. We believe RELI is well-positioned to benefit from these factors, given what we see as its strong balance sheet and management experience. 2) The companys core generation and distribution business is regulated, so we believe its profit may not increase significantly in the near future. 3) We forecast EPC revenue to increase at a CAGR of 40% for FY10-12, with an EBITDA margin of 8% over the period. However, we do not expect the EPC business to contribute significantly to our SOTP valuation. 4) Most of the projects of RPWR, which accounts for 42% of our SOTP valuation for RELI, are at an early stage of execution. We think these projects are unlikely to contribute meaningfully to earnings before FY12. 5) We think the asset-ownership businesses power-transmission and infrastructure projects, such as roads, airports, and metro systems have huge long-term potential. However, most of these businesses are at the investment phase currently. Hence, we do not expect them to boost earnings or return ratios in the near term. 6) The main earnings driver in the past has been treasury income, which we expect to decline due to the increase in investments in assets. 7) The improving visibility with regards to financial closure and the execution of infrastructure and RPWR projects should be positive triggers for the stock, in our opinion. 8) We see the most important near-term catalyst as a favourable verdict in the KG Basin gas case.
Valuation
We have a SOTP-based six-month target price of Rs1,029 for RELI. We value the power business (including RPWR) and the infrastructure business on a DCF-toequity basis, the EPC business on an EV/EBITDA basis, and net cash and equivalent at book value. We value the power-generation assets, the Mumbai licence area and the Delhi distribution area on a DCF basis, with a value of Rs234/share, assuming a cost of equity (CoE) of 13% and a terminal growth rate of 2%. We value the EPC division using a target EV/EBITDA multiple of 9x on our FY11 forecasts, giving a value of Rs159/share. We value the infrastructure asset-ownership projects, including five road projects and metro-system projects, at Rs83/share on an NPV basis at a CoE of 15%. We value RELIs stake in RPWR at Rs425/share on a free-cash-flow to equity basis, using a CoE of 15% and applying a holding-company discount of 20%. We value the net cash and equivalent at book value, at Rs122/share.
Upside triggers and downside risks

In our view, key upside triggers for the stock could come in the form of earlierthan-expected implementation of projects, and the government speeding up the implementation of infrastructure and power projects (faster-than-expected policy reforms). A favourable outcome in the ongoing KG Basin gas dispute would also be a very important upside catalyst for the share price, in our view. We see the key downside risks as project delays, and the possibility of not receiving KG Basin gas. Almost 30% of the companys total planned power capacity is dependent on the availability of KG Basin gas. Any delays with the implementation of RPWR projects or negative news flow in terms of equipment supply or delays in receiving clearances would have a very negative impact on the stock, in our opinion. As far as the regulated business is concerned, any deferment of the revenue gap or fuel-adjustment charge (FAC) would be negative, in our view. In general, land acquisition is a big hurdle for infrastructure projects, and can delay the implementation of road or power projects.
Transitioning from pure utility to an infrastructure conglomerate

RELI is in a transition phase currently. It is evolving from a power utility to a fullfledged infrastructure conglomerate. RELI has power-distribution licences in the two metros of Mumbai and Delhi, generating capacity of 941MW, and a strong EPC business order backlog of Rs206bn concentrated in orders from RPWR and BOT assets (Rs206bn) across the road, metro-rail, real-estate and power-transmission segments.
Restructured businesses
Unlocking major value in subsidiaries
RELI restructured all of its businesses recently under separate subsidiaries. We believe this will enable each business to focus on rapid growth, and we expect major value to be unlocked from these subsidiaries in the future by listing the stocks.
Bidding aggressively for projects
We believe funding would not be an issue for RELI
RELI is bidding for projects across various businesses. In distribution, it is bidding for franchisee licences for cities in Bihar, Madhya Pradesh, Uttar Pradesh and Maharashtra. It is also bidding actively for transmission and infrastructure projects, such as roads, airports, and metros. Funding these projects would not be an issue for RELI, in our opinion. RELI plans to raise Rs42.9bn through an equity issuance priced at Rs1,000/share by allotting 42.9m warrants to the promoters. As per Securities and Exchange Board of India (SEBI) guidelines, RELI will receive 25% of the amount (Rs10.72bn) on allotment, while the balance will be received upon conversion of the warrants. We believe this plan to issue equity should be viewed positively, as it would allow the company to bid for additional infrastructure and power projects, and enhance its borrowing capability.
Incremental equity capex (Rs m)
FY09 Power Western Region Strengthening Scheme Parbati-Koldam Transmission Project Mumbai Strengthening Scheme Infrastructure projects DS Toll NK Toll TK Toll TD Toll SU Toll Mumbai Metro One Airport Metro Express Link , Delhi Gurgaon Faridabad Road Project Total investments Source: Company, Daiwa forecasts 52 1,000 52 45 57 45 84 1,725 3,060 FY10E 1,000 563 5,100 1,331 992 1,931 1,820 6,491 16 19,244 FY11E 3,200 788 5,400 1,575 2,164 562 13,688 FY12E 848 3,800 842 5,490
Issuing warrants to the promoters
RELI needs to put in equity capex of Rs19.24bn in FY10 and Rs13.69bn in FY11 for the existing projects
Infrastructure projects ... no significant contribution
Infrastructure projects do not contribute currently to RELIs revenue or profit. However, RELI has been making steady progress with the urban infrastructure projects that it has undertaken. The five road projects (401km in Tamil Nadu [TN]) have achieved financial closure, and management guides for two of these projects to be commissioned by 3Q FY10. Mumbai Metro One (MMO) and Airport Metro Express Link (AMEL) have achieved financial closure, and are scheduled to be commissioned by 3Q FY11. However, the execution risk remains, and we have yet to see of any of these projects being completed or cash flow start to flow in, so until that happens we would not be confident about the value-accretion capabilities of the projects.
Potential value creation
We believe RELIs asset-ownership business has huge long-term potential. Most of these businesses, however, are at the investment phase currently. Hence, these businesses would not boost earnings or return ratios in the near term. Significant upside from such investments is only likely to become apparent from FY12 onwards, in our opinion.
Reliance Power is the key valuation driver

RELI has a 45% stake in RPWR, which accounts for 42% of our SOTP valuation for RELI. Thus, RPWRs DCF-based fair value would be the main driver of RELIs valuations. We prefer to use a DCF valuation for RPWR, rather than the market price, as the true determinant of its fair value. Currently, RPWRs business is at the execution phase, and a DCF would reflect its true long-term value, in our opinion. RPWR has ambitious plans to set up 33.74GW of greenfield power-generation projects. These include 18.84GW of coal-based projects, 10.28GW of gas-based projects, and 4.62GW of hydro-electric power projects. The projects are well diversified in terms of the type of fuel they use, as well as their geographical spread, in our view.
Capacity-addition schedule
Significant capacity would only start to be added from FY12 onward
(MW) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 300 Jan-10 300 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 6,140 9,920 32,520 6,580 3,880 2,900
Source: Company, Daiwa forecasts
Resolution of gas-supply dispute
30% of RPWRs planned capacity is based on obtaining a supply of gas from the KG D6 field owned by Reliance Industries (RIL) (RIL IN, Rs1,974.3, 3). This matter is before the courts at the moment. Policy proposals by the India Government regarding the supply of gas and an unfavorable outcome in the court case add to the implementation risk for the 10.28GW power plant, in our opinion.
Implementation holds the key
Timely execution of these projects would be the biggest challenge, in our view, while delays with obtaining clearances either environmental or forestry could cause problems. In any event, we believe these proposed projects are unlikely to contribute meaningfully to RELIs earnings before FY12.
However, recent initiatives by the government could aid project implementation
The India Governments renewed focus on accelerating the land-acquisition process, allowing faster clearance from the environmental and forestry departments, and encouraging private participation in coal extraction augurs well for future infrastructure projects, in our opinion. Also, the easier availability of credit through agencies, such as India Infrastructure Finance Company Limited (IIFCL) and Power Finance Company (PFC), should facilitate the financial closure of mega projects. All of these government initiatives should really help with the implementation of these projects, in our opinion, and be a significant positive for RPWR.
We need to monitor the progress of these projects closely. RPWR plans to commission its first plant (Rosa I) by the end of FY10. Timely completion of this project would instil a lot of confidence in managements ability to execute projects on time. Also doubts about the functioning of China-made equipment in an Indian environment could be laid to rest with the smooth operation of Rosa 1. RPWR plans to use main plant packages (boiler, turbine and generator) from equipment suppliers in China for most of its capacity.
Valuation
We have a SOTP-based six-month target price of Rs1,029 for RELI. We value the power business (including RPWR) and the infrastructure business on a DCF-toequity basis (to reflect what we see as the true long-term value of these longgestation-period projects), the EPC business on an EV/EBITDA basis, and net cash and equivalent at book value. We value the power-generation assets, the Mumbai licence area and Delhi distribution area on a DCF basis, arriving at a value of Rs234/share, assuming a CoE of 13% (based on the low-risk nature of the business) and a terminal growth rate of 2% (in line with the low-growth profile of the utility business). We value the EPC division using a target EV/EBITDA multiple of 9x on our FY11 forecasts, giving a value of Rs159/share. This multiple represents a 20% discount to Larsen & Toubros (LT) (LT IN, Rs1,482, 3) E&C divisions multiple of 11.2x on our FY11 forecasts. Our target multiple takes into account the companys lack of an execution history for large projects. The five road projects are valued at Rs46/share on an NPV basis at a CoE of 15%. The metro-rail projects are valued at Rs37/share on an NPV basis at a CoE 15%. We value RELIs stake in RPWR at Rs425/share on a free-cash-flow to equity basis using a CoE of 15%, and applying a holding-company discount of 20%. We value the net cash and equivalent at book value, at Rs122/share.
SOTP methodology
Business Generation and Mumbai licence area Delhi distribution area WRSS EPC Roads Mumbai Metro Delhi Metro RPWR Net cash and equivalent
Equity value (Rs bn) 42.6 20.6 1.3 35.9 10.4 5.8 4.5 266.1 27.6
Stake Value/share (%) (Rs) Remarks 100 189 DCF at CoE of 13% and TV of 2% 49 45 DCF at CoE of 13% and TV of 2% 100 6 NPV at CoE of 15% 100 159 EV/EBITDA of 9x, discount of 20% to LT 100 46 NPV at CoE of 15% 69 18 NPV at CoE of 15% 95 19 NPV at CoE of 15% DCF at CoE of 15%, TV of 2.5%, and 45 425 holding-company discount of 20% 122 Book value Total 1,029
RELI: PER bands

(Rs) 2,500 2,000 1,500 1,000 500 0 Dec-01 May-03 Apr-01 Aug-02 Nov-08 Jan-04 Jun-05 Jul-07 Sep-04 Aug-09 Feb-06 Oct-06 Mar-08
32x 24x 16x 8x
RELI: PBR bands

(Rs) 2,500 2,000 1,500 1,000 500 0 Dec-01 May-03 Apr-01 Aug-02 Sep-04 Nov-08 Jan-04 Jun-05 Jul-07 Aug-09 Feb-06 Oct-06 Mar-08
2.8x 2.1x 1.4x 0.7x
What would drive the stock up or down?

Resolution of the gas dispute in favour of Reliance Natural Resources (RNRL), a group company, would be a very positive share-price catalyst for RELI, in our view. Almost 30% of RPWRs power capacity is dependent on the availability of gas from the KG Basin. The Mumbai High Court order handed down earlier was favourable to RNRL, as it stipulated a gas price of US$2.34/mmbtu. Now, the matter is pending in the Supreme Court. The government has filed for leave to petition the Supreme Court, and the hearing has been set for 1 September 2009. The price of gas could be set at either US$2.34/mmbtu or US$4.2/mmbtu, depending on the ruling. Our base-case assumption for the price of gas is US$4.2/mmbtu. Should the gas be supplied at US$2.34/mmbtu, it would have a significant positive impact on RELI (see following table), in our view.
Sensitivity to realised gas price
Gas price (US$/mmbtu) 3.7 4.3 4.9 5.4 5.9 Per RPWR share value (Rs) 214 178 142 111 82 Value to RELI of 45% stake (Rs) 800 667 532 416 307
RELI is bidding for distribution franchisee licences for various cities in Bihar, Madhya Pradesh, Uttar Pradesh and Maharashtra. RELI is also actively bidding for transmission and infrastructure projects in the road, airport, and metro sectors. While we believe winning these projects would provide a short-term boost for sentiment toward RELIs share price, the real value would not materialise until there is clarity on the value-accretion potential from such projects. We need to see that RELI is not compromising on returns when bidding aggressively for these projects. In the same way, achieving financial closure for these projects would be positive for the stock, in our opinion. RPWR projects account for 69% of RELIs EPC order book. Hence, timely execution of such projects would boost RELIs EPC revenue and enhance the value of RPWR. RELI has created a subsidiary special-purpose-vehicle structure for each business segment. We believe there is a strong possibility that the value of these could be unlocked through initial public offers and listing of some of these subsidiaries in the future. Any adverse development in the RIL-RNRL court case would put 10.28GW of gas-based planned capacity additions at risk. This equates to 30.46% of RPWRs total planned power-generation capacity. RELI has receivables worth Rs10.34bn (Rs46/share) and made up of the revenue gap and FAC from the Mumbai licence area. In our view, further deferment of collections may put a strain on RELIs cash flow. Delays with the implementation of projects by RPWR, or any negative news flow relating to equipment supply or delays in receiving clearances would have a very negative impact on the stock, in our view.
Generation assets and the Mumbai licence area

RELI distributes electricity to 2.7m consumers in suburban Mumbai, with demand peaking at 1,579MVA in FY09. Reliance Energy sources its energy requirements from its own generating station in Dahanu, Tata Power (TPWR IN, Rs1,321.1, Not rated), and other bilateral contracts. The Dahanu Station has a capacity of 500MW, and has only been able to meet 40% of demand in the licence area. Tata Power has been meeting the remaining demand in the licence area. RELI has been unable to sign a long-term power-purchase agreement with TPWR, as TPWR has informed RELI of its inability to provide power from FY11 onwards. RELI has been sourcing power in the spot market at a much higher cost.
Sourcing of power
RELI has issued a tender for medium-term power procurement with a tenure of three-to-five years, which, if it goes ahead, would be the industrys first mediumterm power-procurement agreement. First, the issuance of the tender is in accordance with prevailing regulatory norms, which mandate procuring power for more than a year, and only through a bidding process. Second, the cost of power purchased through the power-purchase agreement would be lower than the Rs7-8 RELI spends when purchasing through bilateral contracts.
Sources of power procurement for distribution in the Mumbai licence area
Sourcing of power from bilateral contracts has risen significantly to 30%, as has the overall tariff for retail customers
(%) 120 100 80 60 40 20 0 FY 07 Dahanu Tata Power FY08 Spot/UI FY09 Dahanu FY10E Tata Power
(Rs) 8 7 6 5 4 3 2 1 0 Spot/UI
Tariff hike capped at 10%
The distribution, transmission and generation of power are all regulated businesses in the Mumbai licence area, with all fixed and variable costs passed on to the consumer. However, in any given year, the increase in tariff for the consumer cannot be more than 10%. The remaining amount is carried forward to the next year, with an interest rate of 10% applied to the amount deferred.
resulting in regulatory assets
Regulatory assets of Rs10.34bn are cause for concern
RELI has Rs10.34bn of regulatory assets in the power business resulting from the revenue gap and FAC. The revenue gap the gap between the actual cost and what has been approved by the regulator in the form of tariffs is Rs3.56bn. The FAC of Rs6.78bn was due to an increase in the cost of fuel, which was not recovered in FY09, but would be recoverable through future tariff determination. These regulatory assets are a cause for concern, in our opinion.
10
Open access
Open access gives a distribution licencee the right to supply power and the consumer the right to receive power from an available distribution player. In the Mumbai licence area, RELI faces competition from Tata Power with regards to distributing power. TPWR can use RELIs existing transmission network by paying a wheeling charge determined by the regulator. TPWR also plans to set up a parallel network, and extend its network to areas where there are none currently. TPWR proposes to incur Rs10bn of capex over next 12 months, which would require prior approval of the regulator. We believe that the above would have no impact on RELI in the near term. However, over the medium term, if RELI is not able to reduce the tariff, it would face the risk of consumers in the licence area shifting to TPWR.
Generation assets
Steady cash flow from 941MW with longterm contracts, but no upside potential, in our view RELI has a total generation capacity of 941MW Dahanu (500MW), Samalkot 220 (MW), Goa (48MW), Kerala (165MW) and wind-farm projects in Karnataka (7.6MW). All of these generation plants have signed long-term power-purchase agreements. All these generation assets come under the purview of the regulatory agencies, with returns on base equity regulated, and all fixed and variable costs passed on to consumers. They generate steady cash flow, and none of these plants have any capex plans for the next two-to-three years. Hence, we do not expect any increase in the regulated equity or eventual increase in returns.
Stable operating cash flow valued at Rs42.57bn

RELI earns a regulated return of 16% from the distribution business, and a 14% return from the generation and transmission businesses, in addition to incentives for operational efficiency. Based on this, we forecast total profits, ie, regulated earnings and incentives, of Rs4.39bn for FY10, Rs4.73bn for FY11 and Rs5.04bn for FY12. We use a free-cash-flow to equity method to value the regulated utility business in Mumbai. We assume a CoE of 13%, given the low-risk nature of the business and a terminal growth rate of 2%, in line with the low-growth profile of the utility business.
DCF of generation business and Mumbai licence area (Rs m)
PAT Depreciation Capex FCF Discount rate (%) PV of cash flow FY10E 4,389 2,870 (7,210) 48 88 43 FY11E 4,729 3,133 (7,510) 351 78 275 FY12E 5,038 3,339 (5,910) 2,467 69 1,710 FY13E 5,298 3,532 (5,510) 3,320 61 2,036 FY14E 5,447 3,578 (1,320) 7,706 54 4,182
Forecast horizon PV of terminal value Equity value Shares outstanding (m) Equity value per share (Rs)
8,246 34,320 42,566 225 189
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Delhi distribution area

RELI distributes power in New Delhi to 2.5m consumers through BSES Rajdhani Power Limited (BRPL) in South and West Delhi, and through BSES Yamuna Power Limited (BYPL) in East and Central Delhi. Increased stake from 26% to 49% RELI increased its stakes in both BRPL and BYPL from 26% to 49% by investing Rs1.34bn in FY09.
Aggregate transmission and commercial (AT&C) loss reduction likely to drive earnings growth
RELI has reduced the AT&C loss dramatically over the past seven years for BRPL, from 47.4% in FY03 to 20.6% in FY09, and for BYPL, from 61.9% in FY03 to 22% in FY09. We expect the decline in AT&C losses to drive earnings growth in the future, by means of incentives for achieving target AT&C-loss reductions in the multi-year tariff (MYT) given by the Delhi Electricity Regulatory Commission (DERC).
Target AT&C losses (%)
According to the MYT, these targets are given to earn incentives over the regulated return
BRPL BYPL
Source: Company, DERC, Daiwa
FY09E 23.5 30.0
FY10E 20.2 26.2
FY11E 17.0 22.0
Valued at Rs20.60bn
RELI earns a regulated return of 16% from the distribution business, as well as incentives for reducing AT&C losses. We use a free-cash-flow to equity method to value the business, with assumptions of a CoE of 13%, and a terminal growth rate of 2% to factor in our expectation of low and stable long-term growth.
DCF of Delhi distribution area (Rs m)
PAT Depreciation Capex FCF Discount rate (%) PV of cash flow Forecast horizon PV of terminal value Equity value Shares outstanding (m) Equity value per share (Rs) RELI's stake (%) RELI's value per share (Rs)
FY10E 2,040 2,085 (2,500) 1,625 100 1,625 7,994 12,606 20,600 225 91 49 45
FY11E 2,160 2,185 (2,500) 1,845 88 1,633
FY12E 2,280 2,285 (2,500) 2,065 78 1,617
FY13E 2,400 2,385 (2,500) 2,285 69 1,583
FY14E 2,520 2,485 (2,500) 2,505 61 1,536
12
Transmission projects
Western Region Strengthening Scheme (WRSS)
RELI was awarded the WRSS project by Power Grid Corporation of India (PGCIL) on a build-own-operate (BOO) basis. We estimate the total project cost to be Rs14bn. RELI achieved financial closure in May 2009, at a gearing of 4x. The project involves the construction of two sets of transmission lines one of 2,317 circuit kilometres (ckm) and the other of 967ckm. Approval to acquire rights of way has been obtained, along with all the regulatory clearances necessary to commence the projects. Design, engineering and testing activities for 90% of the towers have been completed. The project has a concession period of 25 years, and is likely to be commissioned by 3Q FY11.
Parbati-Koldam Transmission Project (PKTP)

RELI is implementing the transmission line network for the Parbati and Koldam hydro-electric power projects in Himachal Pradesh (HP). RELI has a 74% stake, with the remaining 26% held by PGCIL. The total project cost is estimated to be Rs10.75bn. Power Finance Corporation (PFC) (POWF IN, Rs220.8, 1) has sanctioned a major portion of the debt. Financial closure is expected by 2Q FY10, at a gearing of 2.33x. The project is expected to be commissioned by 4Q FY13
Mumbai Strengthening Scheme (MSS)

RELI is currently strengthening the Mumbai transmission system to improve its reliability and match the load requirements of the transmission system. The total project cost is estimated to be Rs18bn. The project is funded at a gearing of 2.33x, and scheduled to be completed by 4Q FY12.
Transmission project details
Project name Western Region Strengthening Scheme Transmission lines Parbati & Koldam in HP Mumbai Strengthening
Source: Company, Daiwa research
Stake (%) 100 74 100
Project cost (Rs bn) 14 11 18
Debt:equity 80 : 20 70 : 30 70 : 30
Construction end 3Q FY11 4Q FY13 4Q FY12
WRSS valued at Rs1.25bn
We value the transmission projects on an NPV basis, with a CoE assumption of 15%. Based on our assumptions, we value the WRSS project at Rs1.25bn. We have not assigned any value to PKTP, given the risk of delays with the construction of generation projects and financial closure of the transmission projects.
13
EPC division revenue CAGR of 40% for FY10-12E

The EPC divisions order book totalled Rs206.2bn at the end of June 2009. We expect the EPC divisions revenue growth to be driven by orders from RPWR. Currently, internal orders account for 70% of the order book, with an order from Sasan UMPP alone accounting for about 60% of this.
Order book for the EPC division (June 2009)
Order from Sasan alone accounts for more than 60% of the order book
Hisar 8% Parichha 1% WRSS 6%
Raghunathpura, DVC 16%
Butibori 7%
Sasan 62%
Source: Company
Strong order-book inflow
RPWR has a pipeline of 33.74GW of projects. Of that, RPWR has placed EPC orders for about 5.4GW (RELI has obtained about 4.26GW of orders). Hence, we believe there is a strong likelihood of a large order-book inflow from RPWR. We believe RPWR is in the process of placing EPC orders for the Krishnapatnam project (6 x 660MW) with RELI, which should flow into the order book between 2Q and 3Q FY10. Other possible orders that might be given to RELI include the Chitrangi project (6 x 660MW) in 4Q FY10, and the Tilaya project (6 x 660MW) in FY11. There is also the possibility of 4,000MW of further capacity being added close to Tilaya, with the availability of additional coal from the Kerendhari B and C blocks of the North Karanpura mines with geological reserves of 1,028m tonnes. This would also result in potential order inflow for RELI in FY12.
Projected order-book Inflow from RPWR
We believe the order book for RELIs EPC division would exceed Rs450bn in FY11, which represents strong revenue visibility
Project Krishnapatnam Chitrangi
FY10E Value (Rs bn) 115 110
FY11E Project Tilaya Value (Rs bn) 115
Managements guidance for sales growth for the EPC division of a 40-50% CAGR over the next three-to-four years looks quite achievable, in our view, given the strong order-book backlog. We have assumed a CAGR of 40% for the value of contracts billed from FY10 to FY12.
14
(Rs bn) 75 65 55 45 35 25 15 5
EPC revenue
% 40
GR CA
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
EBITDA margin estimated to be 8%
Our assumption of an 8% EBITDA margin is based on two major premises: 1) the company outsources the main plant and the balance of plant contracts, and 2) all the projects in the order book are fixed-price contracts. The fixed-priced contracts are exposed to raw-material price risks, as these EPC projects have long gestation periods. Management focuses on project management, and outsources the main plant and balance of plant packages to third parties. Hence, we believe an 8% EBITDA margin is sustainable. Our assumption represents a 300-350 basis-point discount to LTs EBITDA margins of 11-11.5%.
Margin comparison with LT
(%) 16 14 12 10 8 6 4 2 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E FY12E EBITDA margins RELI
EBITDA margins LT
Valuation
We value the EPC division at an EV/EBITDA multiple of 9x on our FY11 forecasts, giving a value of Rs159/share. This multiple represents a 20% discount to the one we apply to LTs E&C division (11.2x on our FY11 forecasts). Our target multiple takes into account RELIs lack of an execution history with large projects.
Valuation of the EPC business
FY11 EPC EBITDA EV/EBITDA multiple of LT (x) Discount rate (%) Target EV/EBITDA multiple (x) EV for EPC (Rs m) Shares outstanding (m) Equity value per share (Rs) Source: Company, Daiwa forecasts 4,008 11.2 20 9.0 35,915 225 159
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Roads
Asset owner of 401 km at advanced stages of construction
These projects are parts of important inter-state and intra-state national highways RELI owns the assets of five BOT toll-road projects located in TN with a total length of 401 km. These projects were granted on concessions from the National Highway Authority of India (NHAI). The average concession period for all these projects is 25 years. RELI has achieved financial closure for all of the projects and, on average, has received grants of 25% for all of them involving a total capex of Rs31.58bn. For the NK Toll and DS Toll projects, construction work has been completed and they are ready to collect tolls. The other three projects (TK Toll, TD Toll and SU Toll) are all at advanced stages of construction, and are scheduled to be completed by 2Q FY11. Each of the five projects originates or passes through an important industrial town in TN. In our view, this should ensure strong traffic growth in the future.
Road-project details
Projects NK Toll DS Toll TK Toll TD Toll SU Toll Share (%) 100 100 100 100 100 Basis BOT toll BOT toll BOT toll BOT toll BOT toll Concession period Status Capital cost (Rs m) Debt:equity:grant (%) (years) Length (km) 20 44 Completed 3,450 80:13:07 20 53 Completed 4,150 80:13:07 30 80 Construction 7,550 61:19:20 30 88 Construction 5,600 40:19:41 25 136 Construction 10,830 47:20:33
RELI has received another BOT toll-based road project in the Delhi NCR region totalling 66 km, with a concession period of 17 years. The total capex required is Rs7.8bn. The project is at an early stage, and management expects to achieve financial closure by 2Q FY10. RELI has emerged as the L1 bidder for the Western Freeway Sealink, and is awaiting the letter of allotment (LOA). The project capex is Rs34bn. RELI has also emerged as a preferred bidder for the Eastern Peripheral Expressway, where the capex is estimated at Rs35bn. A further three road projects worth Rs135bn are in the pipeline and are awaiting requests for proposal (RFP).
Five road projects valued at Rs46 per share
Assumptions for road projects
Parameters Capital cost (Rs m) Debt:equity:grant (%) Base-year traffic (PCUs) YoY growth (%) Base-year toll (Rs/PCU) YoY growth (%) O&M expenses (% of capex) Interest rates Commissioning date (COD)
NK Toll 3,450 80:13:07 34,100 5 316 5 1.0 10 Sep-09
DS Toll 4,150 80:13:07 29,500 5 325 5 1.0 10 Sep-09
TK Toll 7,550 61:19:20 25,700 5 356 5 1.0 10 Jul-10
TD Toll 5,600 40:19:41 14,750 5 368 5 1.0 10 Jul-10
SU Toll 10,830 47:20:33 17,000 5 356 5 1.0 10 Jul-10
We value the five road projects in TN involving the construction of 401 km at Rs46/share on an NPV basis at a CoE of 15%.
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Valuations are very sensitive to traffic and CoE assumptions
Road valuations are very sensitive to the traffic assumptions. For every 100 basispoint decline in the traffic assumption, the value decreases by 20%, and similarly, with every increase of 100 basis points in the CoE, the value increases by 23%. We have not assigned any value to the Delhi NCR region project, as it is still at an early stage and has not yet achieved financial closure.
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Metro-rail projects early-mover advantage

RELI is developing metro-rail projects currently in Mumbai (MMO) and Delhi (AMEL). The total project cost of the two metro projects is Rs52.4bn. In the Mumbai metro, RELI holds a 69% stake, with viability gap funding (VGF) of Rs6.4bn, ie, 27%, and a 95% stake in the Delhi metro. The main revenue stream for both the projects is fares, which would ensure steady cash flow. The other revenue stream would be commercial rents and advertising space that the company gets to develop as part of the concession. The latter revenue stream has upside potential, in our view. RELI also won the Mumbai Metro Line 2 project recently, after it emerged as the sole bidder for a 32km-long elevated stretch in the Mankhurd-Bandra-Charkop corridor with 27 stations and a concession period of 35 years. The total project cost, as estimated by the Mumbai Metropolitan Region Development Authority (MMRDA), is Rs80bn, and VGF is Rs23bn.
Metro-rail project details
Projects MMO AMEL Share (%) 69 95 Concession period (years) 35 30 Length (km) 12 23 COD 2Q FY11 2Q FY11 Capital cost (Rs bn) Debt:equity:grant (%) 23.5 51:22:27 28.8 70:30 (no grant)
Source: Company, Daiwa estimates
MMO RELI holds a 69% stake

The first east-west corridor rail connection The MMO project is the first east-west corridor rail connection in Mumbai. The project was awarded through an international competitive bidding process on a public-private partnership (PPP) framework to a RELI-led consortium. RELI holds a 69% stake, while MMRDA holds 26%, and the remaining 5% is held by Veolia Transport, France. The 12-km long rail project will connect the suburbs of Versova and Ghatkopar, and have 12 stations along the route. These are the busiest areas of Mumbai, and have no existing rail connections. The MMO has a planned initial capacity of 600,000 passengers per day, which will be expanded gradually to 1.1m passengers per day by increasing the frequency of trains.
Financial closure achieved VGF of Rs6.4bn received
The total project cost for developing the rails is Rs24bn, of which the Maharashtra State Government will provide Rs6.4bn in the form of VGF. RELI obtained financial closure for the project in October 2008, with IDBI bank as the lead banker.
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Financial structure
VGF 28%
Debt - Rupee 37%
Equity 22%
Debt - Foreign 13%
Revenue streams: ticketing, rent, and advertising space
The main revenue stream for the project is fares. The base revenue set in FY04 was Rs6 for <= 3 km, Rs8 for >3 & <= 8 km, and Rs10 for >8 km, with an increase of 11% every fourth year. The other revenue stream would be commercial rents that the company gets to develop as part of the concession. Each of the 12 stations has 1,000 sq m of area to develop around the station. The third revenue stream is advertising space on the railway platform and within the train carriages.
Likely to be commissioned by 2Q FY11
The MMO project was awarded in March 2007. Since then, all of the major contracts for rolling stock, signalling, traction, and power supply have been awarded. The consortium possesses about 80% of the rights of way required. A prototype car body has been manufactured successfully, and delivery of the first rolling stock is scheduled for 3Q FY10. Foundation work for viaducts, stations and depots has almost been completed. Foundation work for the Western Express Highway Special Bridge and Mithi River Special Bridge is in progress. The project is scheduled to be completed by September 2010, and has a concession period of 35 years (including the construction period).
AMEL, Delhi
The AMEL project is a metro-rail line linking New Delhi Railway Station and New Delhi International Airport. This is the first high-speed airport link of its kind in the country, connecting the airport with the central railway station. The project was awarded through an international competitive bidding process on a PPP basis to a RELI-led consortium. RELI holds a 95% stake, while remaining 5% is held by CAF (Spain). The 23-km long rail project will have six stations along the route: New Delhi, Shivaji Stadium, Dhaula Kuan, NH-8, IGI Airport and Dwarka. Of the six stations, five would be underground, and only the Dhaula Kuan station would be elevated. It would have an initial capacity of 15,000 passengers per day, which will be expanded gradually to 75,000 passengers per day by increasing the frequency of trains.
Project funding with a gearing of 2.33x
The total project cost for developing the network is Rs28.8bn. RELI obtained financial closure for the project in February 2009, with Axis bank as the lead banker. RELI has funded the project with an equity contribution of Rs7.5bn.
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Revenue streams: ticketing, rent, and advertising space
The main revenue stream is fares. The basic pricing is Rs30 for <=3 km, Rs150 for <=17-18 km, and Rs180 for >=18, with an increase based on the Wholesale Price Index (WPI) every second year. The other revenue stream would be commercial rents for areas that the company gets to develop as part of the concession. The five stations have a total of about 59,000 sq m of area that can be developed around the stations. The third revenue stream is advertising space on the railway platform and within the carriages of the trains.
Likely to be commissioned by 2Q FY11
The project is progressing well, with most of the contracts for rolling stock, signalling, traction, and power supply having been awarded. Definitive designs for all systems have also been finalised. System-wide installation activity has commenced. The project is scheduled to be completed by 2Q FY11, before the Commonwealth Games, and has a concession period of 30 years (including the construction period).
Valuations of metro projects
MMO: assumptions
Tariff <= 3 km > 3 & <= 8 km > 8 km Tariff revision As on FY04 (Rs) As on FY11 (Rs) 6.0 7.4 8.0 9.9 10.0 12.3 11% every fourth year Base (m) 22 164 33 FY18-22 6 6 6 FY23-end 5 5 5
AMEL: assumptions
Tariff <=17-18 km >=18 <=3 km Tariff revision As on FY11 (Rs) 150 180 30 7% every two years Base (m) 4.1 1.1 0.3 FY18-22 12 12 12 FY23-end 10 10 10
Passenger traffic (m) Concentration (%) <= 3 km 10 > 3 & <= 8 km 75 > 8 km 15 Traffic growth (%) <= 3 km > 3 & <= 8 km > 8 km FY12-17 11 11 11
Passenger traffic (m) Concentration (%) <=17-18 km 75 >=18 20 <=3 km 5 Traffic growth (%) <=17-18 km >=18 <=3 km FY12-17 18 18 18
Source: Source: Company, Daiwa forecasts
We value the metro-rail projects at Rs37/share on an NPV basis at a CoE 15%. The discount rate factors in the construction and operational risks that the project carries. We have not assigned any value to the Mumbai Metro 2 project, as it is still at a nascent stage, and not yet achieved financial closure.
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Reliance Power 33.74GW of projects in the pipeline

RPWR is the power-generation arm of Anil Dhirubhai Ambani Group, and RELI has a 44.96% stake in RPWR. RPWR has ambitious plans to set up 33,740MW of greenfield power-generation projects. These include 18,840MW of coal-based projects, 10,280MW of gas-based projects, and 4,620MW of hydro-electric power projects. The projects are well diversified in terms of the type of fuel used, as well as their geographical spread. There are four power projects with an aggregate capacity of about 16GW: i) Sasan UMPP (3,960MW) in Madhya Pradesh has been allotted three captive mines. The coal from these captive mines will also be used for: ii) Chitrangi (3,960MW), located close to Sasan, iii) Krishnapatnam (3,960MW) in Andhra Pradesh will use coal imported from Indonesia, and iv) Tilaya (3,960MW) in Jharkhand, with captive coal blocks from Kerendhari B & C and reserves of 1,028m tonnes. The Rosa power plant, with an aggregate capacity of 1,200MW, is regulated partly by a two-part tariff, with regulated returns of an ROE of 15.5% + 0.5%, and partly on a merchant-tariff basis. Butibori (600MW) is for industrial consumers in Maharashtra, and based partly on merchant sales. The single largest project in the world, a 7,480MW gas-based combined-cycle gas-turbine project in Uttar Pradesh, is to be set up to cater to the needs of the northern states of Punjab, Haryana, Delhi and Rajasthan. Shahpur (4,000MW), a 2,800MW gas-based combined-cycle gas-turbine plant of 1200MW using imported coal and based in Maharashta, will cater to the requirements of the Mumbai licence area, Gujarat and Maharashtra. Seven hydro-electric projects with an aggregate capacity of 4,620MW across Uttarakhand (400MW) and Arunachal Pradesh (4,220MW).
Projects in the pipeline
Projects Rosa I Sasan Krishnapatnam Tilaya Rosa II Shahpur Butibori MPPL Total coal Shahpur (gas) Dadri Total gas Urthing Sobla Tato II Siyom Kalai Amulin Emini Mithudon Total hydro-electric Total
Source: Company, Daiwa
Type Coal Imported coal Coal Coal Imported coal Coal Coal
Configuration (units) 2 x 300MW 6 x 660MW 6 x 660MW 6 x 660MW 2 x 300MW 2 x 600MW 2 x 300MW 6 x 660MW 2 x 1,400MW 5 x 1,400MW + 480MW 4 x 100MW 4 x 175MW 4 x 250MW 8 x 150MW n.a. n.a. n.a.
Gas
Hydro-electric Hydro-electric Hydro-electric Hydro-electric Hydro-electric Hydro-electric
Capacity (MW) 600 3,960 3,960 3,960 600 1,200 600 3,960 18,840 2,800 7,480 10,280 400 700 1,000 1,200 420 500 400 4,620 33,740
Location Uttar Pradesh Madhya Pradesh Andhra Pradesh Jharkhand Uttar Pradesh Maharashtra Maharashtra Madhya Pradesh Maharashtra Uttar Pradesh Uttarkhand Arunachal Pradesh Arunachal Pradesh Arunachal Pradesh Arunachal Pradesh Arunachal Pradesh Arunachal Pradesh
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Implementation holds the key

Power-generation projects have long gestation periods, and there are hurdles to be overcome through out the period, starting with obtaining environmental clearances, financial closure, fuel supplies, acquiring land for building the project, and ensuring the timely supply of equipment. Initiatives by the government Reenergized drive by the India Government to accelerate land acquisition, obtain faster clearance from the environmental and forestry departments, and encourage the private participation in coal extraction augurs well for future infrastructure projects, in our view. Also, the easier availability of credit through agencies such as IIFCL and PFC should facilitate the financial closure of mega projects. All of these government initiatives should really help with the implementation of these projects, in our opinion, and be a significant positive for RPWR. The following table sets out the progress to date for each of the planned projects.
Advancement achieved by planned projects
Projects Rosa I Sasan Krishnapatnam Tilaya Rosa II Shahpur Butibori MPPL Shahpur (gas) Dadri Urthing Sobla Tato II Siyom Kalai Amulin Emini Mithudon Land acquisition * x x x x x * x x x x x x x X X X n.a. n.a. n.a. n.a. n.a. n.a. n.a. x x x x x x x x x x x x x x x x x x * x x x x x x x x x x x x x x x x x x x x x x Water source Environmental Fuel supply clearance EPC/BTG contract Power offtake award agreement Financial closure
n.a. n.a. n.a. n.a. n.a. n.a. n.a.
x x x x x x
Source: Company, Daiwa Note: *75% completed
We set out details of these projects and milestones achieved to date in Appendix I.
Aggregate capex plans for FY10-16 exceed US$20bn

The funding requirements in terms of debt and equity combined exceed US$20bn for FY1016. RPWR achieved financial closure on Sasan during very difficult times, so we are confident in managements ability to raise funds for its mammoth capex plans. Projects with an aggregate capacity of 5.46GW have already achieved financial closure.
Funding requirements
Equity (Rs bn) Debt (Rs bn) Gearing (x) Capacity (MW) FY10E 36 121 3.36 300 FY11E 60 179 2.98 600 FY12E 57 168 2.93 6,740 FY13E 56 159 2.84 16,660 FY14E 45 109 2.43 23,240 FY15E 7 16 2.38 27,120 FY16E 3 8 2.43 30,020 Total 264 759 2.88 30,020
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32.52GW of green field power generation by FY10-FY17

RPWR has ambitious plans to set up 32.52GW of greenfield power-generation projects by FY17. However, we believe the company faces significant execution challenges due to a number of factors, such as the availability of gas. The ongoing court case to resolve the issue of gas supplies from RIL to RNRL might have an impact on the Dadri and Shahpur gas-based projects. The hydro-electric projects are at the very early stages of execution. Meanwhile, most of the coal-based projects have already tied up linkages, or been allotted captive coal blocks. Still, we believe it will be a long and difficult process for RPWR to execute these projects on time. The commissioning schedule for the planned capacity additions up to FY17 is set out in the following table.
Capacity-addition schedule (MW)
Rosa I Sasan Krishnapatnam Tilaya Rosa II Shahpur Butibori MPPL Shahpur (gas) Dadri Urthing Sobla Tato II Siyom Kalai Amulin Emini Mithudon
Source: Company
FY10E 300 300
FY11E 600 600
FY12E 600 2,640 600 1,200 300 1,400 6,740
FY13E 600 3,960 1,600 600 1,200 300 2,800 5,600 16,660
FY14E 600 3,960 4,000 600 1,200 300 1,980 2,800 7,800 23,240
FY15E 600 3,960 4,000 800 600 1,200 300 3,960 2,800 7,800 400 700 27,120
FY16E 600 3,960 4,000 2,400 600 1,200 300 3,960 2,800 7,800 400 700 1,000 300 30,020
FY17E 600 3,960 4,000 4,000 600 1,200 300 3,960 2,800 7,800 400 700 1,000 1,200 32,520
Capacity additions by fuel

(GW) 35 30 25 20 15 10 5 0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Coal Imported coal Gas Hydro-electric
Power offtake
Industries 1%
Merchant power
23%
Case II bids
37%
Case I bids
31%
Cost Plus PPA 0%
8% 10% 20% 30% 40%
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Valuations
RELI has a 45% stake in RPWR, which accounts for 42% of our SOTP valuation for RELI. Thus, RPWRs DCF-based fair value would be the main driver of RELIs valuations. We prefer to use a DCF valuation for RPWR, rather than the market price, as the true determinant of its fair value. Currently, RPWRs business is at the execution phase, and a DCF would reflect its true long-term value, in our opinion.
Assumptions
Our assumptions for capital costs, operational efficiency and revenue are mostly in line with managements assessment. We have adopted slightly higher capital-cost assumptions than management, and our operational assumptions are better than management has guided for. We assume a higher plant load factor (PLF) and lower operation and maintenance (O&M) costs, after looking at the performance of RELIs generation station at Dahanu, which has performed consistently over the past five years at a PLF of 100%, and where O&M costs are much lower than the industry average.
Capital-cost and operational assumptions
Project Rosa I Sasan Krishnapatnam Tilaya Rosa II Shahpur Butibori MPPL Shahpur (gas) Dadri Urthing Sobla Tato II Siyom Kalai Amulin Emini Mithudon Cost Cost (Rs bn) (Rs m)/MW Gearing 27 45.0 80:20 194 49.0 75:25 168 42.4 70:30 165 41.7 75:25 27 45.1 70:30 50 42.0 75:25 14 46.8 80:20 166 42.0 70:30 84 30.0 75:25 224 30.0 70:30 21 52.0 70:30 40 57.8 70:30 58 57.8 70:30 73 60.8 70:30 Station heat rate (kcal/kWh) 2,200 4,700 2,100 2,380 2,200 2,100 4,638 2,050 1,650 1,650 n.a. n.a. n.a. n.a. Price coal/gas Calorific value (Rs/t) or gas (kcal/kg for O&M (US$/mmbtu) coal & kcal/scm for gas) PLF (%) (Rs m/MW) 1,640 4,000 90 1.5 315 4,700 90 1.5 2,400 4,200 90 1.5 315 4,700 90 1.5 1,640 4,000 90 1.5 3,390 4,200 90 1.5 1,150 4,638 90 1.5 500 4,000 90 1.5 5.42 8,100 90 0.6 5.42 8,100 90 0.6 n.a. n.a. 55 1.0 n.a. n.a. 66 1.0 n.a. n.a. 52 1.0 n.a. n.a. 53 1.0
Not considered, as they are at a very nascent stage
RPWR valuation
We believe a DCF is the most appropriate method for valuing RPWR, given the long gestation period of power projects. Our DCF model uses a three-stage forecast for cash flow. The first stage involves cash-flow projections up to FY21. The second stage is the semi-explicit period of FY22-31, during which we assume an annual growth rate of 8% for free cash flow. The third stage is based on a terminalgrowth-rate assumption of 2%. Our model assumes a CoE of 15%. Accordingly, our DCF model gives a value of Rs111.
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DCF to equity in the first stage (Rs bn)

PAT Depreciation Gross cash flow Change in working capital Debt repayment Equity drawdown (initial equity investment) Free cash flow to equity Discount rate (%) Present value of cash flow
FY10E 0.2 0.1 0.2 0.1 0.0 35.8 (35.7) 100.0 (35.7)
FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E 8.0 7.1 2.7 22.1 71.6 93.0 109.7 121.5 133.1 145.9 148.1 1.9 8.1 24.6 38.1 47.5 50.2 52.2 52.2 52.2 52.2 52.2 10.0 15.2 27.3 60.3 119.1 143.2 161.9 173.7 185.3 198.1 200.3 3.1 6.3 22.2 22.8 16.7 5.1 3.8 1.7 1.7 1.9 0.1 4.5 7.7 25.1 57.6 66.6 66.6 66.6 66.6 66.6 66.6 66.6 60.0 57.2 56.0 44.8 6.9 3.4 0.0 0.0 0.0 0.0 0.0 29.0 68.0 91.4 105.4 117.0 129.6 133.6 (57.7) (56.1) (75.9) (65.0) 87.0 75.6 65.8 57.2 49.7 43.2 37.6 32.7 28.4 24.7 21.5 14.4 29.4 34.4 34.5 33.3 32.0 28.7 (50.2) (42.4) (49.9) (37.2)
RPWR: DCF valuation

Explicit period (up to FY21) Semi-explicit period (FY22-31) Terminal period (FY31 onwards) Total Less: equity investment in FY08-09E NPV of FCFE (Rs bn) Value (Rs/share)
Discount rate (%) 15 15 15
NPV (9) 207 126 323 57 266 111
DCF sensitivity to CoE and terminal growth (Rs)

Terminal growth 0.5 1.5 2.5 3.5 4.5
14.0% 134 139 145 152 161
14.5% 117 122 127 133 140
CoE 15.0% 103 107 111 116 122
15.5% 90 93 97 101 106
16.0% 78 80 84 87 92
COE
RPWRs value is very sensitive to the CoE. Every 50-basis-point decline results in a 14.4% increase in the value, while every 50-basis-point increase results in a 13% decrease.
Terminal growth
For every 100-basis-point decline in the terminal growth rate, the value decreases by 3.9%. Similarly, for every 100-basis-point increase, the value increases by 4.6%.
PLF
Every 1% variation in the PLF for the power plants has a 4.1% effect on the value of the company.
O&M
O&M expenses consist of employee costs, repairs and maintenance, and administration and general expenses. A 10% decrease in O&M expenses would raise the value by 5.5%.
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Appendix I update on Reliance Power projects

Rosa Phase I 600MW (2 x 300MW)
Rosa Phase I is a coal-based subcritical power plant, located in the District of Shahjahanpur in Uttar Pradesh. RPWR has acquired 1,470 acres of land, and secured a supply of water from the Garrah river. Coal-supply linkages have been obtained from the Ashoka mines, and a transportation agreement has been signed with Indian Railways. The EPC/BTG contract has been awarded to an electric company in Shanghai. Financial closure has been achieved, with IDBI Bank as the lead banker, and a gearing ratio of 80:20. A power offtake agreement has been signed with Uttar Pradesh Power Corporation Ltd. (UPPCL) for 25 years on a cost-plus-tariff-based powerpurchase agreement, with a regulated ROE of 15.5% + 0.5%. Work on Rosa Phase I is progressing well, and the company expects to commission the first unit by March 2010 and the second unit by June 2010.
Rosa Phase II 600MW (2 x 300MW)

Rosa Phase II is a coal-based subcritical power plant, also located in District of Shahjahanpur in Uttar Pradesh. Phase II will be added using the resources available from Phase I, ie, land and water from the Garrah river, while coal supply linkages will be obtained from Central coal fields. The EPC/BTG contract has been awarded to a Shanghai electric company. Financial closure has been achieved, with IDBI Bank as the lead banker, and a gearing ratio of 80:20. A power offtake agreement has been signed with Uttar Pradesh Power Corporation Ltd. (UPPCL) for 25 years on a cost-plus-tariff-based powerpurchase agreement, with a regulated ROE of 15.5% + 0.5% for 300MW, and the remaining 300MW has a contract with Reliance Trading Limited. Rosa Phase II is scheduled to be commissioned in 2011-12.
Butibori Group Captive Power Plant 600MW (2 x 300MW)

Butibori, a coal-based subcritical power plant, is located in MIDC Butibori, in the District of Nagpur in Maharashtra. Water supply has been secured from MIDC Butibori, and 225 acres of land has been acquired. Coal supply linkages have been obtained from the Western coal fields for 1.234m t.p.a., and a transportation agreement has been concluded with Indian Railways. The BTG contract has been awarded to a Shanghai-based electric company, and the EPC contract has been given to RELI. Financial closure has been achieved, with Axis Bank as the lead banker, and a gearing ratio of 80:20. A power offtake agreement has been concluded, with a power-purchase agreement signed with industrial consumers and trading companies for 235MW. Construction activity has commenced, and site-enabling activity has been completed. There are plans to add a further 300MW at the site.
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Sasan UMPP 3,960MW (6 x 660MW)

Sasan, a pithead-coal supercritical-technology-based UMPP, is located in the District of Singrauli in Madhya Pradesh. Land acquisition is in progress. Of the total requirement of 2,000 acres of land, more than 75% have been acquired, with water supply coming from Govind Vallabh Pant Sagar. The project has been allotted three coal blocks: Moher, Moher Amlohri extension, and Chhatrasal, with aggregate reserves of more than 700m tonnes. Total peak coal production from these mines combined would not be more than 20m t.p.a., with a mine-strip ratio of 1:4. The company will do its own mining at Moher and Moher Amlohri, while Chhatrasal will be given to an operator. The BTG contract has been awarded to a Shanghai electric company, and the EPC contract has been given to RELI. Financial closure has been achieved, with State Bank of India as the lead banker, and a gearing ratio of 75:25. With regards to the power offtake, power-purchasing agreements have been signed with 14 procurers from seven states for 25 years at a levelized tariff. Construction activity has commenced, and site levelling has begun. The commissioning of the project has been brought forward by three years from 2016 to 2013, with the first unit now scheduled to be commissioned in 2012, and completed by March 2013.
Chitrangi Power Project 3,960MW (6 x 660MW)

Chitrangi is a 3,960MW power plant located in the District of Singrauli in Madhya Pradesh. Land acquisition is in progress. The project requires 3,454 acres of land, of which 2,563 acres belong to the government. Coal will be sourced from captive coal blocks allotted to the Sasan project Chhatrasal for which approval has been received. A power offtake agreement for 1,241MW has been signed with M.P. Power Transmission Company Ltd. (MPPTCL) at Rs2.45/unit (Case 1 bid). The rest will be on Case 1 bid with other states in the western region and through shortterm trading.
Krishnapatnam UMPP 4,000MW

Krishnapatnam shall use imported coal and is based on supercritical technology. This UPMM is located in the District of Nellore in Andhra Pradesh. Land acquisition has mostly been completed (2,625 acres), and water supply and seawater clearance has been obtained. Coal will be sourced from Indonesia from Reliance Coal Resources Limited, a 100%-owned subsidiary. The EPC contract has gone to RELI and for BTG they have got offers from vendors, with flexibility to choose the unit configuration between 660, 800 and 1,000MW. Evaluations are being conducted. Financial closure is in process, with IDBI and PFC the lead co-arrangers for the Rupee loan and even Asian Development Bank evaluating it. The company expects financial closure to be achieved by March 2010. With regards to the power offtake, power-purchasing agreements have been signed with 11 procurers from four states for 25 years on a levelized tariff. The first unit is scheduled to be commissioned in September 2013, and completed by March 2014.
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Tilaya UMPP 4,000MW

Tilaya is a pithead-coal supercritical-technology-based UPMM located in Tilaya village, in the District of Hazaribagh, Jharkhand. Environmental clearance has been obtained for the power-plant area. The project has been allotted coal from the Kerendhari B & C blocks of the North Karanpura mines with geological reserves of 1,028m tonnes. The BTG contract has been awarded to a Shanghai electric company and the EPC contract given to RELI. Financial closure has been achieved, with State Bank of India as the lead banker, and a gearing ratio of 75:25. With regards to the power offtake, power-purchasing agreements have been signed with 18 procurers from 10 states for 25 years on a levelized tariff of Rs1.77/unit Construction activity has commenced, and site levelling has started. The first unit is scheduled to be commissioned in June 2015, and completed by June 2017.
Dadri Gas Project 7,480MW (5 x 1,400MW + 480MW)

Dadri is a gas-based combined-cycle gas-turbine project located near Dadri in the District of Gaziabad in Uttar Pradesh. Of the total requirement of 2,500 acres, 2,100 have been acquired. All clearances, including environmental clearance, have been obtained for the project. With regards to the power offtake, power-purchasing agreements have been signed with the northern states of Punjab, Haryana, Delhi and Rajasthan. Construction activity has commenced, and site levelling has started. According to RPWR management, the first unit can come on stream within 1224 months of securing a supply of gas from the KG Basin D6 blocks of RIL.
Shahpur Project 4,000MW

Shahpur is a 1,200MW imported-coal-based super-critical plant, and a 2,800MW gas-based combined cycle gas turbine (CCGT) project, located in the District of Raigad in Maharashtra. Fulfilling the land requirement of 2,630 acres is in progress, while water supply from the Noganthane Weir has been granted by the Maharashtra Government. All clearances (including environmental) have been obtained for the project. Supply of gas for CCGT from the KG Basin D6 Blocks of RIL through the eastwest pipeline, which is 55 km from the Shahpur project, and coal will be imported from Indonesia. Power offtake agreements have been concluded with Gujarat, Maharashtra and Mumbai.
Tato II Hydroelectric Power Project (HEPP) 700MW (4 x 175MW)

Tato II is run off the river located in the Siyom District of W Siang in Arunachal Pradesh. A detailed project report is being prepared by SNC Lavalin, and environmental-impact studies have been completed. A report on the hydrological aspects has been submitted to the Central Electricity Authority (CEA)/Central Water Commission (CWC) for approval. Power offtake to distribution companies (discoms) on cost-plus-tariff and merchant-sales bases, scheduled to be commissioned by 2015-16.
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Siyom HEPP 1,000MW (4 x 250MW)

Siyom is also run off a river, located in the Siyom District of W Siang in Arunachal Pradesh. A detailed project report is being prepared by Halcrow, in the UK, and environmental clearance and consent to establish the project have been obtained. A report on the hydrological aspects has been submitted to the CEA/CWC for approval, and the layout plan is being finalised. Power offtake to discoms on a cost-plus-tariff basis, scheduled to be commissioned by 2016-17.
Urthing Sobla HEPP 400MW (4 x 100MW)

Urthing Sobla is run off a river in the Dhauliganga District of Pitthorgarh, Uttarkhand. A detailed project report is being prepared by SMEC Australia, and all project clearances are being pursued. Power offtake is on a 100% merchant-sale basis, and the project is scheduled to be commissioned by 2015-16.
Kalai HEPP 1,200MW (8 x 150MW)

Kalai is run off a river in the Lohit District of Anjaw in Arunachal Pradesh. Power offtake to discoms on cost-plus-tariff and merchant bases, scheduled to be commissioned by 2017.
Amulin (420MW), Emini (500MW) and Mithudon (400MW) HEPP

Amulin, Emini and Mithudon are new hydro-electric power plants for which a memorandum was signed with the Arunachal Pradesh Government on 2 March 2009. All three plants are located on the Mathun River, in the Dibang Valley, and are at very nascent stages.
29
Company background
RELI is a power-distribution licencee in the two metros of Mumbai and Delhi, has a generating capacity of 941MW, and has emerged as a strong player in the EPC business. It has BOT assets across the road, metro-rail, real-estate and power-transmission segments. It has a 45% stake in RPWR, which has pipeline of 33.74GW of greenfield power-generation projects.
Reliance Infrastructure financial summary

Profit and loss (Rs m)
Year to 31 March Net sales of electricity Income from EPC Total revenue YoY change (%) Cost of electricity Cost of fuel Salaries & wages Exp of EPC, contracts Other expenses Total op. exp. EBITDA EBITDA margin (%) YoY change (%) Depreciation EBIT Other income Interest PBT Tax Tax rate (%) Reported PAT Net-profit margin (%) YoY change (%) 2008 49,198 14,444 63,642 11.5 26,193 10,155 3,525 13,357 4,948 58,178 5,463 8.6 9.8 2,229 3,234 11,370 3,088 11,516 671 5.8 10,846 17.0 35.3 2009 71,831 25,134 96,965 52.4 42,540 13,197 3,940 23,392 8,831 91,900 5,065 5.2 (7.3) 2,449 2,616 12,623 3,305 11,934 545 4.6 11,389 11.7 5.0 2010E 2011E 62,002 67,746 35,789 50,105 97,791 117,851 0.9 20.5 29,494 33,287 10,625 11,220 4,727 5,200 32,926 46,097 8,106 8,367 85,878 104,171 11,913 13,680 12.2 11.6 135.2 14.8 2,870 3,133 9,043 10,548 11,877 11,555 4,766 4,766 16,154 17,337 2,908 3,121 18.0 18.0 13,247 14,216 13.5 12.1 16.3 7.3 2012E 73,800 70,147 143,947 22.1 37,381 11,856 5,720 64,535 8,634 128,126 15,820 11.0 15.6 3,339 12,481 11,468 4,766 19,183 3,453 18.0 15,730 10.9 10.6
Balance sheet (Rs m)

As at 31 March Paid-up capital Reserves & surplus Total equity Total debt Other liabilities Capital employed Net fixed assets Capital work in progress Investments Inventory Debtors Other current assets Cash and equivalent Loans and advances Total cur. assets Current liabilities Provisions Total cur. lia. & prov. Misc. expenditure Capital deployed 2008 2,356 114,513 116,869 49,889 2,687 169,445 30,675 5,689 76,644 3,003 13,514 6,456 877 66,365 90,215 25,994 7,784 33,778 169,445 2009 2,261 116,814 119,074 73,322 1,940 194,336 33,402 5,644 121,471 4,407 15,233 10,121 2,510 55,766 88,036 46,555 7,663 54,218 194,336 2010E 2,253 138,615 140,868 73,322 1,940 216,130 43,386 134,060 4,590 18,754 10,121 23,133 42,394 98,991 52,508 7,800 60,308 216,130 2011E 2,253 150,503 152,756 73,322 1,940 228,017 47,764 147,799 5,359 20,987 10,121 5,054 45,456 86,977 46,723 7,800 54,523 228,017 2012E 2,253 163,657 165,909 73,322 1,940 241,171 50,334 152,799 6,657 25,634 10,121 14,025 48,815 105,252 59,415 7,800 67,215 241,171
Ratios
Year to 31 March EPS (Rs) YoY change (%) Cash EPS (Rs) EBITDA (%) Net-profit margin (%) Net debt to equity (%) PER (x) EV/EBITDA multiple (x) PBR (x) EV/sales (x) ROCE (%) ROE (%) BVPS (Rs) ROA (%) DPS (Rs) Div.-payout ratio (%) Dividend yield (%) Asset-turnover ratio Inventory (days) Receivables (days) Payables (days) 2008 46.0 23.7 55.1 8.6 17.0 41.9 24.7 58.0 2.10 5.0 6.7 10.3 542.5 5.7 6.3 13.6 0.6 0.3 19.9 77.5 73.3 2009 50.4 9.4 59.0 5.2 11.7 59.5 22.6 64.8 2.25 3.4 6.3 9.7 505.4 5.2 7.0 13.8 0.6 0.4 18.9 57.3 69.5 2010E 58.8 16.7 68.7 12.2 13.5 35.6 19.3 25.7 1.8 3.1 6.5 10.2 623.1 5.1 8.2 14.0 0.7 0.4 21.0 70.0 75.0 2011E 63.1 7.3 73.9 11.6 12.1 44.7 18.0 22.4 1.7 2.6 6.4 9.7 678.1 5.1 8.8 14.0 0.8 0.4 20.0 65.0 80.0 2012E 69.8 10.6 81.3 11.0 10.9 35.7 16.3 19.4 1.5 2.1 6.7 9.9 736.5 5.3 9.8 14.0 0.9 0.5 20.0 65.0 80.0
Cash flow (Rs m)

Year to 31 March PBT (excl EO) Depreciation Net change in working capital Others Cash flow from operations Capex Net Investments made Other investing activities Cash flow from investing activity Change in share capital Change in debt Div. & div. tax Others Cash flow from financing activity Total cash generated Cash opening balance Adjustments Cash closing balance 2008 2009 2010E 2011E 2012E 11,516 11,934 16,154 17,337 19,183 2,229 2,449 2,870 3,133 3,339 (5,278) (1,108) 15,759 (11,850) 3,388 (5,999) (4,349) 1,858 1,645 1,313 2,470 8,926 36,641 10,264 27,223 (7,603) (5,737) (7,210) (7,510) (5,910) (456,656) (440,270) (12,589) (13,739) (5,000) 438,140 436,082 (26,118) (9,925) (19,799) (21,249) (10,910) (1,269) (7,593) (8) 1,900 15,129 (1,403) (1,696) (2,170) (2,329) (2,577) 3,537 (3,209) 5,959 (4,766) (4,766) 2,765 2,632 3,782 (7,095) (7,342) (20,883) 1,633 20,623 (18,079) 8,971 21,759 876 2,510 23,133 5,054 877 2,510 23,133 5,054 14,025
Daiwa forex assumptions (vs. US$)

Year end 2007 2008 2009E 2010E 2011E Source: Daiwa Rmb 7.300 6.828 6.700 6.450 6.200 HK$ 7.800 7.750 7.800 7.800 7.800 W 935.8 1,259.6 1,200.0 1,160.0 1,100.0 S$ 1.440 1.430 1.440 1.420 1.400 NT$ 32.432 32.792 32.500 32.200 32.400 A$ 1.143 1.423 1.250 1.120 1.160 Rs 39.413 48.803 47.000 46.100 45.500 Rp 9,400 11,120 9,800 9,500 9,500 RM 3.310 3.460 3.480 3.440 3.420
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DAIWAS ASIA PACIFIC RESEARCH DIRECTORY

Hong Kong Regional Research Head Regional Research Co-head Macro Economy (Hong Kong, China) Strategy (Regional) Banking (Hong Kong), Insurance (China) Consumer/Retail (Hong Kong, China) Industrials (Regional) IT/Electronics (Regional, Taiwan, Singapore, Hong Kong and China) IT/Electronics (Hong Kong, China) Materials/Energy (Regional) Nagahisa MIYABE Craig IRVINE Kevin LAI Mun Hon THAM Steven CHAN Peter CHU Taiki KAJI Pranab Kumar SARMAH (Regional Head of IT/Electronics) Joseph HO Alexander LATZER (Regional Head of Materials) Jason LI Andrew CHAN Jonas KAN (Head of Hong Kong Research) Kevin LEUNG Marvin LO (852) 2848 4971 (852) 2848 4485 (852) 2848 4926 (852) 2848 4426 (852) 2848 4468 (852) 2848 4430 (852) 2848 4460 (852) 2848 4441 (852) 2848 4443 (852) 2848 4463 (852) 2848 4499 (852) 2848 4964 (852) 2848 4439 (852) 2848 4489 (852) 2848 4465 (852) 2848 4024 (852) 2848 4467 (852) 2848 4483 (86) 21 5840 1338 (86) 21 5879 6833 (86) 21 5840 5653 (86) 21 5840 1138 (65) 6321 3050 (65) 6321 3069 (65) 6329 2102 (65) 6329 2133 (65) 6321 3085 nagahisa.miyabe@daiwasmbc.com.hk craig.irvine@daiwasmbc.com.hk kevin.lai@daiwasmbc.com.hk munhon.tham@daiwasmbc.com.hk steven.chan@daiwasmbc.com.hk peter.chu@daiwasmbc.com.hk taiki.kaji@daiwasmbc.com.hk pranab@daiwasmbc.com.hk joseph.ho@daiwasmbc.com.hk alexander.latzer@daiwasmbc.com.hk jason.li@daiwasmbc.com.hk andrew.chan@daiwasmbc.com.hk jonas.kan@daiwasmbc.com.hk kevin.leung@daiwasmbc.com.hk marvin.lo@daiwasmbc.com.hk geoffrey.cheng@daiwasmbc.com.hk kelvin.lau@daiwasmbc.com.hk alan.chan@daiwasmbc.com.hk h.yuihama@dirsh.com.cn ricon.xia@dirsh.com.cn nicolas.wang@dirsh.com.cn hongxia.zhu@dirsh.com.cn tatsuya.torikoshi@dir.com.sg p-k.basu@daiwasmbc.com.sg david_lum@daiwasmbc.com.sg sookee@daiwasmbc.com.sg csanda@daiwasmbc.com.sg
Materials/Energy (China) Oil & Gas (China, Korea) Property Developers (Hong Kong, China), Conglomerates (Hong Kong) Small/Medium Caps (Hong Kong, China) Telecommunication (Regional, Greater China, Korea and Singapore) Transportation (Hong Kong, China) Geoffrey CHENG Transportation (Hong Kong, China, Singapore) Kelvin LAU Utilities (China) Alan CHAN China Shanghai Strategy (Regional) Automobiles Consumer/Retail All Industries Singapore Head of Research Macro Economy (Regional)
Hirokazu YUIHAMA (Head of Research) Ricon XIA Nicolas WANG Hongxia ZHU
Tatsuya TORIKOSHI Prasenjit K BASU (Chief Economist, Asia Ex-Japan) Banking, Property and REITs (Singapore) David LUM (Regional Head of Banking/Finance) Healthcare (Singapore, Hong Kong and China) Soo Kee ANG Conglomerates, Commodities; Energy and Chris SANDA Small/Medium Caps (Singapore) Hirokazu MITSUDA Christina Y LIU (Chief Economic Advisor) Aaron JENG Calvin HUANG Andrew CHANG Mitsuharu WATANABE Albert HSU Chang H LEE (Head of Research) Sung Yop CHUNG Eric MIN Daniel LEE Sang Hee PARK Naoki IEIRI Jae H LEE Thomas Y KWON Yukino YAMADA (Based in Tokyo) Johan VANDERLUGT David BRENNAN Jaideep GOSWAMI (Head of Research) Punit SRIVASTAVA Vishal CHANDAK Atul RASTOGI Kartik A. MEHTA R. RAVI
Taiwan Head of Research Macro Economy IT/Electronics (IC-design, Semiconductors) IT/ Technology Hardware IT/Technology Hardware (Components) IT/Technology Hardware Materials, Small/Medium Caps South Korea Banking/Finance Automobiles, Shipbuilding, Industrials Banking/Finance Chemicals Consumer/Retail Industrials IT/Electronics IT/Electronics, Software Australia Macro Economy Banking/Insurance Resources/Mining/Petroleum India Strategy/Industrials Banking/Finance Materials Oil & Gas Pharmaceuticals and Healthcare, Consumer Software, Telecommunications
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34

2009-08-24 (Daiwa Sec) Reliance Infrastructure (1) ... Nts The Growth Potential.i

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2009-08-24 (Daiwa Sec) Reliance Infrastructure (1) ... Nts The Growth Potential.i

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Company Report

24 August 2009 (No. of pages: 34)

Target price: Rs1,029.00 (-9.6%) Share price: Rs1,137.75 (24 Aug)

Initiation of coverage: valuation discounts the growth potential

(x) (x) (x) (x) (%) (%) (%) (%)

2010E 19.3 7.0 25.7 1.8 0.7 10.2 5.1 35.6

2011E 18.0 25.0 22.4 1.7 0.8 9.7 5.1 44.7

2012E 16.3 9.4 19.4 1.5 0.9 9.9 5.3 35.7

Price and relative performance

Source: Bloomberg, Daiwa

Global Equity Research

Jaideep Goswami (91) 22 6622 1010

Jaideep Goswami (91) 22 6622 1010

Upside triggers and downside risks

Jaideep Goswami (91) 22 6622 1010

Transitioning from pure utility to an infrastructure conglomerate

Unlocking major value in subsidiaries

We believe funding would not be an issue for RELI

Issuing warrants to the promoters

Infrastructure projects ... no significant contribution

Reliance Power is the key valuation driver

Significant capacity would only start to be added from FY12 onward

Source: Company, Daiwa forecasts

Resolution of gas-supply dispute

Jaideep Goswami (91) 22 6622 1010

Jaideep Goswami (91) 22 6622 1010

RELI: PER bands

RELI: PBR bands

Source: Company, Daiwa forecasts

Source: Company, Daiwa forecasts

Jaideep Goswami (91) 22 6622 1010

What would drive the stock up or down?

Source: Company, Daiwa forecasts

Jaideep Goswami (91) 22 6622 1010

Generation assets and the Mumbai licence area

Source: Company, Daiwa forecasts

Tariff hike capped at 10%

Regulatory assets of Rs10.34bn are cause for concern

Jaideep Goswami (91) 22 6622 1010

Stable operating cash flow valued at Rs42.57bn

8,246 34,320 42,566 225 189

Jaideep Goswami (91) 22 6622 1010

Delhi distribution area

FY09E 23.5 30.0

FY10E 20.2 26.2

FY11E 17.0 22.0

FY11E 2,160 2,185 (2,500) 1,845 88 1,633

FY12E 2,280 2,285 (2,500) 2,065 78 1,617

FY13E 2,400 2,385 (2,500) 2,285 69 1,583

FY14E 2,520 2,485 (2,500) 2,505 61 1,536

Jaideep Goswami (91) 22 6622 1010

Parbati-Koldam Transmission Project (PKTP)

Mumbai Strengthening Scheme (MSS)

Stake (%) 100 74 100

Project cost (Rs bn) 14 11 18

Construction end 3Q FY11 4Q FY13 4Q FY12

WRSS valued at Rs1.25bn

Jaideep Goswami (91) 22 6622 1010

EPC division revenue CAGR of 40% for FY10-12E

Raghunathpura, DVC 16%

Strong order-book inflow

Project Krishnapatnam Chitrangi