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Read more about R-Infra gains as construction biz get a boost, EPC order book triples on Business Standard. Analysts call it a small positive step, say defence order visibility is key
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
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
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.