Reliance Infrastructure seems to be gaining mass slowly, but surely.
Even as a slew of its projects, includes the much-awaited Mumbai Metro Line-I, are scheduled to be commissioned next year, the company has submitted a business plan to recover Rs 4,800 crore of regulatory assets in its Mumbai distribution circle.
About Rs 2,000 crore has already been recovered and remaining Rs 2,800 crore will be recovered in the next six years. Regulatory asset is unrecovered cost incurred over and above the tariff fixed by the regulator.
For its Delhi circle, the regulator has approved regulatory asset of Rs 5,000 crore (till 2010-11).
Considering lower valuation (0.5xP/B), comparatively lower debt (Rs 18,116 crore) on books and commissioning of many projects in 2013, foreign brokerage JP Morgan has given an 'overweight' call on Rinfra, but also lowered the price target to Rs 600 a share from Rs 715.
Analysts Sumit Kishore and Deepika Mundra of JP Morgan, in a December 6 report, estimated a 26% year-on-year growth in operating profit in the next fiscal that would be led by newly commissioned two roads projects, higher contribution from wire strengthening business in Mumbai, commissioning of Mumbai Metro Line-1 and modest Ebitda growth of the power distribution business.
Lauding the management for its conservative approach while bidding for new build-operate-transfer projects, it said the company has shelved projects with uncertainties like Bandra Worli sea link extension and decided not to go ahead with capex on projects awaiting clearances like Mumbai Metro Line-II and Krishnapatnam ultra mega power project where profitability is uncertain.
The JP Morgan report said a settlement with Delhi Metro Rail Corporation (DMRC) would be favourable if the company manages to get a moratorium on payment of annual licence fee to DMRC.
Despite all the positives, there are also overhangs, said an analyst with a domestic brokerage. The company is estimating a regulatory asset of Rs 13,000 crore (by 2012-13) in Delhi circle alone, but it is doubtful whether the regulator will recognise and allow to recover this huge amount taking into consideration of the less capacity of consumers, the analyst said.
Moreover, there has been Rs 800-Rs 900 crore project cost overrun over Rs 2,450 crore original project cost of Mumbai Metro due to delays in securing Right of Way, change in design, increase in number of rakes and scope of work, the analyst said.
“Response of investors toward Reliance Infra scrip depends on how much the company has to bear on account of cost overrun and how much grant government will provide,” he said.