Reliance Infra eyes stressed road assets; profit flat

May 28, 2012

Reliance Infrastructure Ltd (R-Infra), an arm of the Anil Ambani-led Reliance Group, is scouting to buy some road projects from developers who have not been able to complete the works due to a lack of money, said chief executive Lalit Jalan.

R-Infra is eyeing around 20 such assets and hopes to conclude some deals this fiscal year, said Jalan while announcing the firm’s March-quarter earnings on Friday.

“There are assets that are two-thirds complete but the developers now have no money,” Jalan said. “Many of them have put their assets on the block.”

On 9 May, for instance, infrastructure company IRB Infrastructure Developers Ltd announced it had acquired MVR Infrastructure and Tollways, a firm that operated a 66-km road between Salem and Karur in Tamil Nadu on the so-called build, operate and transfer (BOT) model.

Jalan said any acquisition will be in-line with the internal rate of return, or IRR, of 20% that R-Infra’s enjoys on its existing road projects portfolio.

R-Infra’s net profit growth was muted due to higher expenses and finance costs. Net profit inched up to Rs.411.46 crore in the quarter ended 31 March from Rs.410.88 crore a year ago and from Rs.408.32 crore in the preceding October-December quarter.

Revenue almost doubled from a year ago to Rs.7,135.31 crore. But finance costs also doubled year-on-year to Rs.419.30 crore. The company’s total expenditure rose 84% from the year-earlier period to Rs.6,740 crore.

Share prices of R-Infra rose 1.86% on BSE on Friday to close at Rs.463.05 apiece. The benchmark Sensex ended the day nearly unchanged at 16,217.82 points.

“R-Infra’s March-quarter results got substantial support from the EPC (engineering, procurement and construction) division, but higher interest costs and other expenses ate into profits,” said Manish Kumar, infrastructure sector analyst at SBICap Securities Ltd.

The rise in interest outgo, according to Jalan, was a result of more of its infrastructure projects coming onstream. R-Infra has long-term debts to the tune of Rs.11,000 crore and a short-term debt of Rs.6,000 crore, he said.

The company’s net profit was marginally below market expectations.

A consensus of R-Infra’s earnings estimates put out by various analysts and compiled by Bloomberg had pegged its net profit at Rs.457 crore. Its revenue, however, surpassed the consensus estimate of Rs.6,130 crore.

For fiscal 2012, R-Infra’s net profit rose marginally to Rs.1,587 crore fromRs.1,552 crore in the previous year. Revenue jumped 59.50% to Rs.24,272 crore.

R-Infra’s EPC and contracts business was the major contributor to its topline and profitability in the January-March quarter.

Revenue from the segment grew around five-fold to Rs.4,141 crore.

Operating profit from the division jumped almost 12-fold to Rs.231crore.

Most of R-Infra’s EPC contracts pertain to power projects being built by Reliance Power Ltd (R-Power), another group firm in which it holds an equity stake. With more of R-Power’s projects progressing on the ground, R-Infra’s EPC business did well.

R-Infra’s EPC order book stood at Rs.17,280 crore as on 31 March.

Kumar of SBICap said that with a large portion of the regulatory overhang on the company’s electricity distribution business being out of the way, its earnings from that business should improve going forward. Regulatory uncertainty largely pertained to certain key approvals that were awaited from the electricity regulatory commissions of Maharashtra and Delhi, including tariff hikes.

Some of the approvals are in place and others are expected shortly, the company said in a statement.

“At current valuations, R-Infra is a more favourable pick than other infrastructure companies,” Kumar said.

On a sequential basis, however, R-Infra’s electricity and the EPC and contracts businesses saw operating profits decline, and losses from the infrastructure business widened.

Net sales from the electricity business fell 7.4% quarter-on-quarter to Rs.2,902 crore.

Jalan said sequentially lower sales from the electricity business was a function of seasonality, and lower segment profits from the business, along with the EPC division, was due to higher allocation of costs on account of these businesses in the final quarter of the fiscal year.


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