The management plans to bid for external EPC contracts to cash in on government-led initiatives for the infrastructure sector. Owing to low EPC revenue visibility, high regulatory assets and unrelated diversification, we expect the stock to trade at a discount to our fair value. Maintain ‘hold’ with a revised SoTP-based target price of Rs 575 (Rs 554 earlier) as we roll over to FY18E.
In the Mumbai distribution business, RELI continued to recover all its dues (Rs 20 billion recovered till Q3FY16 out of Rs 55 billion). However, there is build up of regulatory assets in Delhi, amounting to Rs 154 billion, due to under-recovery.
This recovery seems to have been delayed due to inadequate tariff hikes in July 2015. EPC order book (Rs 36.6 billion, 1.4x TTM EPC revenue) continues to decline due to lack of sizeable order inflow.