Reliance Infrastructure’s growth momentum is expected to remain strong owing to the increase in the tariff rate and RPL’s acquisition of 100% economic interest in the Indonesian coal mines.
The likely flow of orders from the group companies should lead to a revenue growth of EPC segment’s if the Company improves its order - execution rate. Moreover, we believe that irs entry into the infrastructure and real estate sectors will help in its diversification.
Reliance Infra is developing roads of over 400 kms of length with an investment of Rs3,158 crore and concession period ranging from 20-30 years. The two BOT road projects of the company, which are expected to be completed by October 2008, will provide a new stream of revenue.
The company is also developing two metro rail projects one each in Mumbai and Delhi under public private partnership.
At the current market price, the stock is trading at a P/E of 11.6x and 9.6x for FY09E and FY10E, respectively. In our target price, we have not yet factored the three BOT projects that are expected to complete by 2010 and the metro rail projects due to lack of data availability.
Considering the outlook towards the company’s core sectors and our SOTP valuation, we arrive at a fair price of Rs900, which reflects a potential upside of 17% compared to the current price. We reiterate our BUY rating.