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  • Jan 30, 2010 - Reliance Infra: Higher other income, lower taxes help

Reliance Infra: Higher other income, lower taxes help
Jan 30, 2010

Performance summary
  • Sales drop 16% YoY during 3QFY10, 1% YoY during 9mFY10. Lower tariffs, owing to passing on the lower fuel cost benefits to customers, impacted the company’s sales performance.
  • Operating margins contract to 10.3% in 3QFY10 (11.5% in 3QFY09), largely owing to higher staff and other costs.
  • Despite a 25% YoY decline in operating profits, net profits rise by 10% YoY during the quarter. This was led by higher other income and lower taxes. Profits during 9mFY10 rise by 14% YoY.


Standalone financial performance snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 27,176 22,875 -15.8% 74,594 73,834 -1.0%
Expenditure 24,056 20,521 -14.7% 65,844 65,356 -0.7%
Operating profit (EBDITA) 3,120 2,354 -24.6% 8,750 8,478 -3.1%
Operating profit margin (%) 11.5% 10.3%   11.7% 11.5%  
Other income 1,436 2,156 50.1% 4,555 6,230 36.8%
Interest 865 565 -34.7% 2,293 2,342 2.1%
Depreciation 589 830 40.9% 1,822 2,292 25.8%
Profit before tax 3,101 3,114 0.4% 9,191 10,075 9.6%
Tax 589 343 -41.8% 1,264 1,069 -15.4%
Profit after tax/(loss) 2,512 2,771 10.3% 7,927 9,006 13.6%
Net profit margin (%) 9.2% 12.1%   10.6% 12.2%  
No. of shares       227.8 225.3  
Diluted earnings per share (Rs)*         55.4  
P/E ratio (x)*         18.6  
* On a trailing 12-months basis

What has driven performance in 3QFY10?
  • Reliance Infrastructure (RIF) saw a 16% YoY decline in sales during 3QFY10. This was a result of a 20% YoY decline in sales of its electrical energy division. This was seemingly owing to lower tariffs as the company may have passed on the benefits of lower power purchase costs to customers. The decline in power purchase costs would have been owing to lower fuel costs for Tata Power that supplies a large part of this external power to RIF. Volume sales of electricity increased by 2% YoY. As for the company’s EPC division (29% of total sales), sales fell by 3% YoY during the quarter. This segment has an order backlog of around Rs 190 bn.

    Segment wise performance
      3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Electrical Energy            
    Revenue (Rs m) 20,312 16,237 -20.1% 58,853 51,796 -12.0%
    % share  74.7% 71.0%   78.9% 70.2%  
    PBIT margin 11.0% 9.2%   10.0% 9.2%  
    EPC and Contracts            
    Revenue (Rs m) 6,864 6,638 -3.3% 15,741 22,038 40.0%
    % share 25.3% 29.0%   21.1% 29.8%  
    PBIT margin 5.8% 6.0%   7.8% 8.4%  
    Total*            
    Revenue (Rs m) 27,176 22,875 -15.8% 74,594 73,834 -1.0%
    PBIT margin 9.7% 8.3%   9.6% 8.9%  
    * Excluding inter-segment adjustments

  • RIF recorded a decline in its cost of power purchased from external sources. These costs declined from being 45% of sales in 3QFY09 to 39% in 3QFY10. RIF purchased around 55% of its power sold during the quarter from external sources. In terms of volumes, it stood at 1,361 m units (MU) as against 1,407 MU purchased during 3QFY09. The average cost of power purchased stood at Rs 6.53 per unit, down by around 25% YoY. However, the benefit of this was not felt on the company’s operating margins that declined by 1.2% YoY to 10.3% in 3QFY10. Higher staff and other costs led to this decline in overall margins.

  • Despite a 25% YoY decline in operating profits during 3QFY10, RIF’s net profits grew by 10% YoY. This was led by higher other income and lower taxes. The net effective tax rate for the company during the quarter stood at 11%, as against 19% in 3QFY09.

What to expect?
At the current price of Rs 1,031, the stock is trading at a multiple of 15.2 times our estimated FY12 earnings and 1.5 times our estimated FY12 book value per share. RIF continues to focus its energies on the EPC business where, amongst others, it is currently working on six power projects.

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