R-Infra gains as construction biz get a boost, EPC order book triples

1. R-Infra gains as construction biz get a boost, EPC order book triples For the year 2018, Anil Ambani-led Reliance Infrastructure (RInfra) so far has reported order wins worth more than Rs 60 billion for its engineering, procurement and construction segment. Analysts believe the orders may be a good step but visibility on larger investments made in defence and roads is key. Last week, RInfra informed the exchanges it has won an EPC contract for Rs 36.47 billion from Tamil Nadu Generation and Distribution Corporation Limited for balance of plant package and allied civil works for the 2x800 Mw supercritical coal-based Uppur Thermal Power Project. In the last two months, the company has announced order wins NTPC and two other road EPC projects from National Highway Authority of India (NHAI). An email query sent to RInfra remained unanswered. The past few years saw RInfra limit its exposure to the EPC business, with a larger focus on the infrastructure segment, where the company invested in road

2. construction ownership. The company, however, looks to change its strategy to an asset-light model to focus on defence and EPC. The compamy's order book in September last year stood at Rs 56.35 billion, which the company in its press statement last week said has touched Rs 150 billion. This, however, analysts add is still small compared to the size of the company. “The EPC orderbook is a positive step in the right direction, but the impact of earnings may be negligible. It is a small part compared to the size of the company. The size of the company is quite large, because of the Reliance Power equity holding, that dilutes in the EPC part. The key is to have a road map on the divestment of the road assets and business prospects for the defence vertical. The defence business is a long story and with the country going into election mode, it is a wait and watch,” said an analyst from domestic brokerage firm who did not wish to be identified. In December, R-Infra entered into a definitive agreement with Adani Transmission for 100 per cent sale of its integrated Mumbai power business for Rs 132.51 billion. The company plans to use proceeds from the deal to reduce debt. “The company’s debt is not a concern, but where is the next growth phase coming from is what is not clear. The company has spread in various sectors,” said a second analyst on the condition of anonymity. In a rating report on RInfra published on 2nd January this year, Care Ratings noted, the company’s plans to increase focus on EPC is unlikely to significantly improve the business and financial profile of the company over the short term, given the limited order book position and working capital intensive nature of business. An official from an advisory firm added banks are now willing to extend project specific-finance. “EPC orders are in plenty, for anyone who has survived the downturn; it is a good time to get orders. The existing lenders may have given an extended credit line, where lending at project level is being looked at other than company level. Banks are willing to look at project specific credentials,” he added. To be sure, EPC projects by nature do not need the company to lock capital in the project for a longer duration.

3. Article By - Business Standard