Event update: Reliance Infrastructure (Outperformer) - Conclusion of sale of Mumbai DISCOM
Reliance Infrastructure (RInfra) has sold the Generation, Distribution and Transmission assets of Mumbai License Area to Adani Transmission at an Enterprise Value of Rs138bn (includes regulatory assets of Rs12bn).
Details of the deal and key takeaways from analyst meet
- RInfra has sold its Mumbai distribution business (which includes generation, transmission and distribution assets) at a total value of Rs138bn, core business is valued at Rs121bn and balance is working capital of Rs3bn and regulatory assets of Rs12bn (which will be available to Adani Transmission as of end Aug 2018). Excluding regulatory debt of Rs35bn, the deal implies a value of 2.6x of the regulated equity.
- RInfra has utilised entire proceeds of Rs138bn to reduce the standalone debt. Post the deal, the standalone debt has reduced from ~Rs160bn to ~Rs75bn.
- In addition, RInfra has filed regulatory claims of Rs50bn for past years pertaining to Mumbai DISCOM. Out of Rs50bn, any incremental approval of cash flow will accrue to RInfra.
- RInfra expects to be debt free by end of CY19. The proceeds from all the pending arbitration claim will be used to retire debt. Note that company has won Rs56bn of claims in arbitration from Delhi Metro in tribunal. The case is now being heard in Delhi High court.
- Impact on financials: Downgrade in FY19E/FY20E standalone earnings by 29%/45% to account for sale of Mumbai DISCOM
Valuations & view
We believe the sale of Mumbai distribution business to Adani Transmission is another step by the company to reduce its dependence on asset heavy businesses thus, enabling debt reduction of 65% on Standalone Company. The agreement to sell Mumbai license area business is in line with RInfra’s strategy to sell its cement and road businesses to focus on capital-light, high RoE defence and EPC businesses. We believe the focus on defence equipment business, along with steady cash flows from EPC businesses will create value for shareholders, especially as the stock is trading at an attractive 0.5x FY19E P/BV. Maintain Outperformer with a revised target price of Rs561/sh.
Reliance Energy is primarily engaged in generation, transmission and distribution electricity in India. Co. is also engaged in engaged in a portfolio of services in the power sector in Engineering, Procurement and Construction (EPC) through a network of regional offices in India. Co. operates two business segments: Sale of Electrical Energy and Engineering, Procurement and Construction (EPC) and Contracts. As of Mar 31 2006, Co. had approx. 24.5 million consumers, consisting of approx. 300,000 industrial, approx. 3,400,000 commercial and approx. 21,300,000 residential consumers across an area that spans 124,300 sq. km. in Mumbai, Delhi, Orissa and Goa.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.