Reliance Infrastructure Company Analysis
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Project Report
on Reliance Infrastructure Company Analysis Case Study
Company Overview
Reliance Infrastructure Ltd (formerly Reliance Energy Limited) is
India's largest private sector power utility, as well as a key player in many
other infrastructure sectors. In the power sector, Reliance is involved in the
generation, transmission, distribution and trading of electricity, in addition
to constructing power plants as energy performance certificates partners. In
the infrastructure space, the company is focused on roads and urban
infrastructure, including mass rapid transit systems, sea-link and airports, as
well as in specialty real estate and special economic zones (SEZ).
Strategy
Reliance's core
market is the generation, transmission and distribution of electricity.
However, Reliance has also established a strong presence in other
infrastructure segments such as road and metro projects.
According to
Morgan Stanley, Reliance was estimated to have invested a total of INR16,500mn
in infrastructure projects by the end of the 2010 financial year.
The Morgan
Stanley report said that 'stronger than expected' growth in the engineering,
procurement, construction (EPC) portfolio will insulate the company's
operations from potential 'political interference' in the PPP market.
We note that
reducing the reliance on long-term concessions in both transport and power
projects will consequently reduce the company's exposure to demand risks and
possibly price risks. However, the government has shown significant willingness
to finance the country's massive infrastructure needs through private sector
participation and to buttress that involvement through schemes such as the
viability funding gap, making political interference a relatively small risk.
The company had
already signed a US$5bn credit agreement with US Exim bank for the purchase of
US goods and services used in Reliance's projects, while it is currently
holding talks with investors and funds to sell a stake in its roads, metro
lines, and transmission businesses, potentially unlocking additional value in
them.
Reliance is thus
in a favourable position to extend its portfolio in both the transport and
power sectors in India. The chairman of Reliance Power, Anil Ambani, announced
that the company planned to finance power projects with debt in 2009/10,
according to Reuters. The company was planning to raise nearly INR200bn
(US$4.1bn) to finance its three mega-power projects. The three projects are
expected to generate 4,000MW of electricity each.
Recent
Developments
In January 2013,
Reliance Infrastructure resolved its conflict with DMRC over the Delhi Airport
Metro Express - the showcase urban transport PPP project. Passenger fares were
on average, raised by 50%, while train speeds on the metro link were reduced by
50%.
In October 2012,
Reliance Group started work on widening and collecting tolls on the Delhi-Agra
road, with an investment of INR29.45bn (US$558.25mn), Road traffic- Technology
reports. Work involves construction and renovation of 16 flyovers, two
overpasses, 14 vehicle underpasses, eight bridges on service roads and 10
pedestrian underpasses. It will be able to handle 70,000 vehicles a day, up
from its existing limit of 17,000.
In September
2012, Reliance Infrastructure was reported by the Economic Times to be looking
to sell its non-metro airports division. The subsidiary, known as Reliance
Airport Developers, owns five non-metro
brownfield airport projects in Maharashtra (Nanded, Yavatmal, Baramati, Latur
and Osmanabad). Reliance Infrastructure is thinking of selling the subsidiary
because it could be seeking better returns for its investments by focusing on
larger airports such as those at Negpur and Pune - as of September 2012, only
the Nandred airport has scheduled commercial flights.
In July 2012,
Reliance Power had secured loans worth US$1.1bn from three Chinese lenders in
order to support the construction of its upcoming Sasan ultra mega power
project in the Indian state of Madhya Pradesh. The Sasan Ultra Mega Power
Project will have a generation capacity 3,960 megawatts (MW). The Bank of
China, China Development Bank and the Export Import Bank of China, along with
Standard
Chartered Bank
will finance the project. China Export & Credit Insurance Corporation would
provide the insurance cover, with the loans covering a period of 13 years. The
project is valued at nearly US$4bn and is scheduled to enter commercial
operation in December 2012.
In April 2012,
Areva Solar commenced phase 1 construction of Asia's largest concentrated solar
power (CSP) installation in Rajasthan. The 250MW project is being constructed
for Indian power company Reliance Power, which also commissioned a 40MW solar
PV plant earlier this year. The first phase of the project is expected to bring
125MW of capacity online by May 2013, with a doubling of capacity in the second
phase. The timeline for the second phase is currently unconfirmed.
In April 2012,
Reliance Power has announced that it will invest more than INR60bn (US $1.18bn)
in developing solar power generation projects in Rajasthan by 2014, reports
Business Standard. The company intends to increase the solar power generating
capacity of the state to 300 megawatts (MW). It commissioned a 40MW facility in
March 2012 and is currently developing a 100MW plant which is scheduled to
commence operations in 2013.
In February
2012, Italian export-credit agency SACE and Reliance Industries signed a loan
agreement. The agency guaranteed a US$400mn equivalent loan secured by the
company to expand and upgrade the production capacity of its petrochemicals
plants. The company will also use the loan for a gasification plant and
refinery off-gas cracker. The deal is the fourth transaction between RIL and
SACE since 2004, bringing the total loans supported by SACE for RIL to US$1bn.
In January 2012, Reliance Infrastructure was in discussions to purchase the
three road projects of the National Highways Authority of India in Tamil Nadu,
reports the Economic Times. The projects, which are estimated to involve an
investment of nearly INR10bn (US$199.26mn), are Ullunderpet-Padalur,
Padalur-Trichy and Salem-Karur. A joint venture of Shapoorji Pallonji is the
operator of the 46.40km Ullunderepet-Padalur road project, while the 40km
Padalur-Trichy project is operated by a JV between Indu Projects and Navayuga
Engineering. The 41km Salem-Karur project is operated by MVR - MRK - JTEC.
In December
2011, Reliance Infrastructure (RLIN) is expected to sell a stake in its power
transmission division Reliance Power Transmission (RPTL). According to the
Economic Times (citing unknown sources), bidders for Reliance Transmission have
already been short-listed and would submit their final bids by mid-December
2011. RLIN is expected to make a final decision on the stake sale based on the
bids it received.
Financial Data
Reliance posted improved results in its
2008/09 annual report (covering April 1 2008 to March 31 2009). Gross revenue
for the company increased by an impressive 46% in a challenging business
environment to reach INR109bn (US$2.16bn) up from INR750bn (US$1.87bn) in
2007/08. Both gross and net profit also increased, by 3.5% and 4% respectively.
Net profit for the year was INR11.39bn up from INR10.85bn in 2007/08.
Conversely, the
company's net profit in US dollar terms, as quoted by Reliance in their annual
report, fell to US$224.55mn in 2008/09 from US$270.34mn, illustrating the
currency fluctuations between the US dollar and the Indian rupee. However, as
Reliance carries out the majority of its work in India, this had a limited
impact on profit margins.
FY08/09:
■ Net
Profit: INR11.39bn
■ Revenue:
INR109bn
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