Reliance Infrastructure plans to sell cement, road businesses

To focus on tapping opportunities in the country’s defence sector; Q2 net profit down 6% at Rs 290 crore

Reliance Infrastructure, the infrastructure arm of Reliance Group, is looking to sell its cement and roads businesses, and will now focus on the upcoming opportunities in India’s defence sector.

The company is hoping to close the sale of cement and road businesses by March 2016. Speaking to newspersons, on sidelines of the company’s second quarter earnings, MS Mehta, CEO, Reliance Infrastructure said that the company has already begun the process of due diligence on both the businesses and is expecting to get valuations in line with the last few transactions in the cement space.

For the roads business, where valuations have remained under pressure, the company is not limiting itself to Indian buyers.

Reliance Infrastructure’s consolidated net profit came in lower by 6% y-o-y at R290 crore in the quarter ended September 2015, due to a nearly three fold jump in tax expenses.

However, the company’s total income was up by 8% y-o-y to R4,388 crore due to increase in income from EPC contract business. “There are agencies who are looking for long term annuity kind of income, so for them it is a good investment, as our assets are de-risked. (The buyer) may not be an Indian player, maybe some overseas players like pension funds or sovereign funds who have the liquidity and who can take a long term view on infrastructure in the country,” Mehta said.

He said the proceeds from the sale of these assets will be primarily utilised for completion of Pipavav Defence acquisition and retiring of debt. Unlike other infrastructure players, who are divesting assets to take on new opportunities in the sector, Mehta said that the company has “no such plans”.

In a statement issued on Wednesday, the infrastructure company said that the company’s board has decided to grow the business in the defence space due to “relatively lower capital intensity; lower gestation period; minimal regulatory uncertainties; higher job creation and potential for superior return on equity”.

Reliance Infrastructure had signed an agreement in March 2015 with Pipavav Defence & Offshore Engineering Co to acquire the company in an all cash deal.

Meanwhile, the company in a statement said that it has 5.6 million tonnes per annum capacity in the cement business and related assets. “We have short-listed seven potential buyers from a total of 15 parties that submitted preliminary expressions of interest, and announcements will be made at the appropriate stage,” it said.

As for the roads, Mehta said that the company is looking to sell the entire portfolio of 11 road assets in one deal, and not separately. It has investments of R8,800 crore in the business which is 100% owned. The projects of around 1,000 kms are spread across 7 states.

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