Reliance Infrastructure's Q3FY18 results (Outperformer) - Finalizes Sale of Mumbai DISCOM
Q3FY18 result highlights
- Standalone revenues declined by 15% yoy to Rs21bn. Revenues from EPC business witnessed a decline of 80% yoy to Rs1bn while power business increased by 3% yoy to Rs20bn.
- Standalone EBIDTA came in at Rs5.6bn (vs estimate of Rs5bn) led by power business. Other income during the quarter was lower by 21%yoy to Rs6.4bn. As a result, Adj. PAT (standalone) came in at Rs3bn (our estimate of Rs3bn). EPC order book is Rs105bn
- Reliance Infrastructure (RInfra) has entered into a binding share purchase agreement with Adani Transmission to sell Generation, Distribution and Transmission assets of Mumbai License Area at an Enterprise Value of Rs133bn (includes regulatory assets of Rs12bn). The proceeds from the sale will be utilised to retire debt (total standalone debt at 160bn).
- Reliance Power (40% stake) earned a profit of Rs2.9bn while Reliance Defence (30% stake) posted a loss of Rs1.7 bn in Q2FY18 (both are associates). Mumbai Metro business to report losses of ~Rs700m. As a result, Cons. adjusted PAT for Q3FY18 was Rs3.0bn.
- During Q3FY18, Order inflow was Rs50bn from Reliance Power for 750MW CCPP in Bangladesh along with LNG terminal. As a result, order book increased by 2x to Rs105bn
Key positives: Binding share purchase agreement with Adani Transmission for sale of Mumbai DISCOM at a EV of Rs133bn
Key negatives: Delay In INVIT of road assets
Impact on financials: We have downgraded our earnings estimates by 2% in FY18E owing to weak execution expected in Q4 in EPC business
Valuations & view
Reliance Infra as a part of its strategic reorientation plans to sell its road assets through INVIT and has entered into binding agreement to sell Mumbai discom business in order to focus on the capital-light, high RoE defence and EPC business. With the acquisition of Pipavav Offshore and acquisition of 35 industrial licenses, company has made foray into defence business. We believe the focus on defence equipment business, along with steady cash flows from the EPC and power distribution businesses can create value for shareholders especially as the stock is trading very cheaply at 0.5x FY18 P/BV. Maintain Outperformer.
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.
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