Reliance Infrastructure builds on buzz of new order win

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Reliance Infrastructure rose 3.03% to Rs 1237.65 at 10:52 IST on reports a consortium of the company and Hyundai Engineering is likely to win a contract worth Rs 1500 crore to connect Mumbai's Bandra-Worli sea link with Haji Ali.

Meanwhile, the BSE Sensex was up 65.46 points, or 0.46%, to 14330.99.

On BSE, 2.45 lakh shares were traded in the counter. The scrip had an average daily volume of 20.64 lakh shares in the past one quarter.

The stock hit a high of Rs 1259 and a low of Rs 1217.90 so far during the day. The stock had hit a 52-week high of Rs 1373.70 on 1 June 2009 and a 52-week low of Rs 354 on 27 October 2008.

The stock had outperformed the market over the past one month till 18 June 2009, rising 19.96% as compared to the Sensex's 0.13% decline. It had also outperformed the market in the past one quarter, soaring 150.05% as against the Sensex rise of 58.92%.

The large-cap private sector utility and infrastructure developer has an equity capital of Rs 226.42 crore. Face value per share is Rs 10.

The current price of Rs 1237.65 discounts the company's year ended March 2009 EPS of Rs 50.38, by a PE multiple of 24.56.

The consortium is the only bidder in the fray for this corridor called Western Freeway, which would connect the newly-built Bandra-Worli Sealink to Nariman Point.

Separately, some media reports also suggested that Reliance Infrastructure (RIL) has started negotiating with domestic banks to tie up funds for the second phase of Mumbai's metro rail project, though the company is yet to win the contract.

According to reports, the reason for the company's confidence is because it was the lone bidder for the 32 kilometre (km) metro project and the award of the contract will just be a formality. Reliance Infrastructure quoted a viability gap figure of Rs 2,298 crore, which was much less than the permissible limit of 40% (or Rs 3,064 crore) of the total cost of the project, which is Rs 7,660 crore.

The Reliance Infrastructure stock was in demand recently on speculation it will benefit from gas supply from Reliance Industries (RIL). The Bombay High Court in a verdict on Monday, 15 June 2009 said that Anil Ambani's Reliance Natural Resources (RNRL) will get assured gas supply of 28 million metric standard cubic metre per day (mmscmd) of gas from RIL's Krishna-Godavari basin for 17 years at $2.34 million per metric British thermal unit (mmbtu). This is much lower than the price fixed by the government for gas sale from the RIL block in the KG basin at $4.2 mmbtu.

The favourable verdict lends better visibility to Reliance Infrastructure's gas-based ultra mega power plant (UMPP) at Dadri, Uttar Pradesh which is under construction. The plant, which was originally planned with a 3,750-megawatt (mw) capacity, was later scaled up to 7,450 mw. The first phase of the gas-based power project comprising 1,400 mw is likely to be operational by mid-2010.

The Dadri project, was planned before the split of the Ambani brothers with lack of clarity on gas supply keeping it from achieving a financial closure.

On 9 June 2009 Reliance Infrastructure's shareholders approved a proposal to de-merge and transfer various divisions of the company to separate wholly owned subsidiaries.

As per the proposal, the 500-megawatt (MW) Dahanu power station will come under a separate subsidiary Reliance Energy Generation, and Goa and Samalkot power stations under the Reliance Goa and Samalkot Power respectively. The power transmission division will be under Reliance Power Transmission and power distribution division will go to Reliance Energy. While the toll roads division will become Reliance InfraVentures, the real estate division will become Reliance Property Developers.

The de-merger would benefit the respective companies as well as stakeholders as it would create a simplified & transparent business structure and aligning the interest of various stakeholders, the company said. It can attribute appropriate risk and valuation to different businesses based on their respective risk-return profile and cash flows.

Further, the de-merger will give a more focused management and optimal financing structure, greater visibility, tax efficiency and possibility of investments by strategic players in different businesses.

Reliance Infrastructure had on 25 May 2009 said it plans to raise Rs 4300 crore by issuing share warrants to its founders as it gears up to bid for infrastructure contracts. The company will issue 4.29-crore warrants convertible into shares at Rs 1000 each to the Anil Dhirubhai Ambani group.

Reliance Infrastructure's net profit rose 11.2% to Rs 346.18 crore on 42.5% rise in net sales to Rs 2339.67 crore in Q4 March 2009 over Q4 March 2008.

The company is engaged in generating, transmitting and distributing electricity. It also provides electrical contracting, engineering, procurement and construction contracts and computer services.

Promoters of the company have pledged 3.72 crore shares, or 16.45% equity. The total promoter holding in the company is 37.55% as on March 2009

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