Reliance Infrastructure

Q2FY11 Post Result Conference Call Transcript

Representative: Mr , CEO & Whole Time Director along with other Senior Management

PL Rep.: Rupa Shah – 91‐22‐6632 2244

Date: November 13, 2010

Moderator

Ladies and gentlemen good day and welcome to the Q2 FY 11 Results Conference Call hosted by Prabhudas Lilladher. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions at the end of today’s presentation. Should you need assistance during the conference call, please signal an operator by pressing “*” and then “0” on your touchtone telephone. Please note that this conference is being recorded. Joining us on the call today from Prabhudas Lilladher are Ms. Amesha Vora and Mr. Dilip Bhat, Joint Managing Directors along with Ms. Rupa Shah, Analyst, Prabhudas Lilladher. I would now like to hand the conference over to Ms. Rupa Shah. Thank you and over to you.

Ms. Rupa Shah – Prabhudas Lilladher

Yeah, good morning everyone and welcome to the call. We have with us Mr. Lalit Jalan, CEO and Whole Time Director of Reliance Infra; and his team members represented by Mr. Subhash Chand Gupta who is the Head Operations and Head EPC; Mr.Madhukar Moolwaney who is the Senior Executive Vice President of A&F; Mr. Krishna Maheshwari who heads the Metros, Mr. Sudhir Hoshing who heads the Roads; Mr. Alok Roy who heads the Transmission; and Mr. Amit Jain who heads the Investor Relations. So what we can do, we can start the call by some initial remarks by Mr. Lalit Jalan and then we can move to the Q&A. Over to you sir.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Good morning. Lalit Jalan here. And welcome all of the analysts. We have announced our quarterly numbers yesterday and the numbers are with you all. As we started the practice in the first quarter, we are now reporting the consolidated numbers so that a fair picture of all the SPVs and all the operations of the company can be made available to all our investor friends. So I will just repeat the numbers. Our total operating income has been at 4,043 crores, which is an increase of 2% over YOY. The net profit is at 360 crores, which is an increase of 11% over last years 325 crores. The cash profit at 486 crores shows an increase of 11%. The cash earnings per share is at Rs.19.8 per share. And the earnings per share is at Rs.14.7. The EPC revenues on a standalone basis are at 807 crores. And as also I mentioned in the last conference call that basically if you look at Reliance Infrastructure Business, it is a mix of three big pieces. One is a list of operating projects which we already have and they are working. Second is a big plate of execution projects on the infrastructure side. And the third is the huge amount of opportunities that are there in each of the verticals that we shall be addressing and the teams are working to get good profitable projects to put that into the development and the execution pipeline. Also the focus of the company besides the operations right now is fully on execution. We have more than 25,000 workers working at our various sites working round the clock. And every quarter as you see the numbers you will find the assets, the projects coming on schedule. Again, as mentioned to my friends, the company was essentially a distribution company has over the last 3 to 4 years transformed into ’s largest infrastructure company. Today we have 25 projects with a total project outlay of Rs 40,000 crores. This does not include the distribution assets and our real estate projects. Broadly speaking, there are 11 road projects of 970 km with an outlay of Rs 12,000 crores, three metro projects with an outlay of 16,000 crores, five transmission projects with an outlay of 6,600 crores. We have a sea link with an outlay of 5,000 crores and five airports with an outlay of 500 crores. We will have 12 revenue generating projects by the end of this fiscal year. So we will have 8 road projects which will be earning revenue for the

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company. We will have the Metro, which will be earning revenue. We will have 2 transmission projects and we will have the sea link which will all be earning revenues for the company. If I look at various verticals, the distribution, it is the country’s most efficient utility with losses less than 11% and with a reliability of 99.97%. We have continued to add customers. We have added more than 46,000 customers in the first half of this year. This is on top of the 100,000 customers that we had added last year. The migration to Tata Power has reduced dramatically and from the time that the migration has started, the current migration rate is 80% lower than what it was at the beginning. And extremely surprisingly, there have been about 200 customers who have migrated back to Reliance Infrastructure and this is in spite of our current tariff being more than Tata’s. And the reason when we asked was essentially owing to an after sales service that was provided by Tatas in terms of not being able to deliver bills on time or not being able to address the billing queries of the customers which forced the customers to move from currently low tariff regime to our high tariffs today. On the tariff front, the regulator had appointed ASCI, to look at our account for the last 6 years across power procurement, capital expenditure, and overhead expenditure. They have given a complete green chit to Reliance Infrastructure. And based on that report, the MERC has removed the stay which they had put on our tariff in June 2009. Owing to this removal of stay, our regulatory assets accretion has stopped and the effective tariff increase has been from the tariff that existed prior to the stay is almost 24%. Now since the ASCI has given us a clean report,, we have filed our ARR for the current year and we expect that based on our filings the resolution will be expected for the cross subsidy which has been a long standing demand of the Government of and has been a strong recommendation and also been accepted by MERC. MERC is also apprised of the allocation issue between the various utilities in Mumbai and we expect an order on that shortly. Also across the city cutting across party lines all the legislators have demanded for a uniform tariff which also the regulator is going to address. There were some issues, come concerns in the minds of some of you with regards to license. Our license comes for renewal middle of next year. We have applied for extension of that license on 1st of November for an extension of 25 years. And then we have taken legal opinion from all the legal luminaries in the country. And there is simply no provision in the Electricity Act 2003 for bidding out an existing license. The only way in which a license can be sold is if that license is revoked owing to deficiencies in the service provider, of which there is no question. So we have already asked for an extension. Of course, the regulator has a right to give parallel licenses. If you look at the case of Mula Pravara which was the other case which was coming up for renewal in some time January – February, the 6 people who applied have been asked by MERC to all apply for the new license. We are very happy with competition. And we welcome as many licenses on the retail front as are interested and as want to serve the customers of Mumbai. On the IT side, we have won 2 more projects on the consultancy of the Maharashtra 10 towns and for Bihar in Patna. We are now one of the leading IT consultants in the power sector space. We have 6 assignments with various states which will also give us a competitive edge as and when these assets come up for privatization. On the distribution opportunities, Maharashtra is going to come out with Jalgaon, Malegaon, Mumbra, Kalwa. They are going to come out with franchisee requirements for these towns. They have announced their intent. is looking at 4, 5 districts of Rewa, Narsingpur, Ashok Nagar. Uttarakhand has announced for Roorkee and Rudrapur. And Hariyana and Karnataka have also initiated some limited process. Being the largest and the most efficient utility in the country, we feel that we will be one of the front runners to address these opportunities as they come. We continue to win awards for IT, customer care, best network, best utility etc. Briefly on the Delhi distribution business, we expect to earn incentives this year also, which will be above our regulated return of 16%. And we have earned incentives over the last 3 years on top of our regulated returns. One thing which might not be well known is that in the recently concluded Common Wealth Games BSES that is the two utilities run by Reliance Infra were supplying power to 15 of the facilities including Jawaharlal Nehru Stadium at the opening games and the closing games for a period of 15 days. And we are happy to say that the entire event passed off without even a 1 second drip in the power supply. And before we feel that what’s the big deal in this, public memory is short, but last year in the IPL finals at Mumbai there was a half an hour power outage and in the World Cup Cricket Semi Finals in Calcutta which is also run even by a private utility there was a half an hour outage which led to finally abandonment of the match. So it is a good achievement by the Delhi discoms. Our long standing demand of fuel adjustment charge for Delhi has finally been accepted. The petition has been admitted by the DERC and we expect a favourable order on that very shortly. The regulator has also asked us to put in a petition for

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truing up of last year accounts, which we have done. And we expect the tariff that got stuck in Delhi to be also announced by the end of the year. And just 3, 4 days back both the Delhi discoms have been awarded as the best distribution utility in the country. I will now hand over to my colleague, Mr. Alok Roy, who is the veteran from Power Grid and who runs our initiative. Over to you, Alok.

Mr. Alok Roy ‐ Head Transmission, Reliance Infra

Good morning everybody. Alok here. On transmission business we have 5 projects in hand today on Pan India basis. On the western region we have the western region augmentation system high voltage 400 kv double circuit lines of 1,500 km, of which the first line has been ready for commissioning. It has been charged and seems to be fault free and it will be commissioned in next 1 or 2 days. We are looking at that as the first ever 100% privately owned high voltage transmission line in the national sector. And thereafter our revenue will start immediately. And on the entire project we have now 2,500 people working and the entire project will be completed by the middle of 2011. In that we have some over 4,000 towers out of which 2,500 tower foundation work has been completed We have had our share of teething problems, but we are going to do this as per schedule. And we are present in about 10 states of India. The second project that we are doing is Parbati Koldam that is Rs 1,100 crore project. That is in the high hills of Himachal Pradesh and that is evacuation of power from Koldam and Parbati which are the two hydroprojects by NHPC and NTPC respectively. And the financial closure is done for 770 crores and the preliminary construction work has started. We have site offices and all infrastructures ready. And that is taking off and it will be completed in 2013. Third one as all of us know is the Mumbai strengthening. There is a lot of augmentation work going on to handle the ever increasing power demand and therefore the transmission requirement in and around Mumbai. And we have 3 receiving stations to be commissioned within this financial year. And delivery of our critical equipments such as GIS, sub station and large transformers and 220 kv under ground cables have been delivered and the work is on full swing. We have already incurred Capex of about 250 crores till this quarter 2 of this financial year. So that’s Mumbai strengthening. And the complete project cost will be close to about 1,800 crores. And the 4th & 5th projects, combined cost of about 2,400 crores that is one part is coming from Andhra through Orissa to the borders of MP. And the second large one from MP going over through UP coming through Hariyana going to . So these are called Talcher augmentation and North Karanpura Transmission System. These has the highest voltage level in the country that is 765 kv line and 400 kv gas insulator sub stations which are a new type of GIS stations being put up in the country. And then of course we have gone into the bidding process of 3 projects that is being put up. One in November, another in December, another in January. The November bid has been put up and it will be on 25th that we will get to know the result. And two are which are put together about 4,000 crores are scheduled to come up in December and January in the form of RFPs. So with this we are looking at a total portfolio of about 3,500 crores in the next 2, 3 years from PFC and with REC. So about 600 billion that is Rs. 6,000 crore over the next 2, 3 years. And the biggest factor here for our growth and our vision is to get in to as the most renowned private player in the competitive field. The 12th plan that is being opened up for private players into transmission sector, would open up about 200,000 crores of transmission opportunity in competition over the next 5 years. So therefore that would mean about 30 to 40,000 crores of business opportunity per year. Thank you very much.

Mr. S.C. Gupta ‐ Director Operations and Head EPC, Reliance Infra

S.C. Gupta here. Good morning to everybody. I will take you through the EPC business. In the last 3 or 4 years we have emerged as a strong integrated EPC company responsible for execution of power and infrastructure projects. We have more than 1,500 hard core engineers in the center of engineering excellence. And we are proud to say that we have developed enough skills and potential in the engineering team to take on large power and infrastructure projects. We have over 1,600 professionals in the EPC team who professionally implement these projects on a turnkey basis. Our order book position as of now for the EPC has grown over 24,000 crores and is likely to swell exponentially in the next 1 or 2 or 3 years. Received orders for 4 road projects exceeding 6,400 crores in

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the last quarter. We are already working on 6 power and 6 road projects. Over 15,000 people are working on several sites, which is going to exponentially grow to more than 50,000 people on sites. We have already started implementing 4,000 mega watt Sasan UMPP, where the civil and the structural work is going on in full swing and more than 3,000 people are already working at site. The Hisar project awarded by Government of Hariyana is already nearing completion. The largest unit in the country for 600 mega watt has already been commissioned by the in house team and has been declared commercially operational. The unit 2 is under trial runs and in the next 3 or 4 weeks will be declared successful commercially under operations. The another project of 1,200 mega watt is in advance stage for DVC Raghunathpur Project in . And the work is in full swing with over 4,000 people working there. All the issues related to safety, quality, and extensive project planning management is in place to carry on the project in a highly IT based manner. There are many major projects which are in the pipeline like Krishnapatnam UMPP 4,000 mega watt, Samalkot gas based projects 2,400 mega watt, and Chitrangi of 4,000 mega watt. And these projects are likely to be extended further. We are also building substantial capability in implementing infrastructure projects, especially metros, mono rails, roads, and other projects. So proudly we want to say that it is emerging as one of the strong EPC teams for implementing the projects right from concept taking it through the basic engineering detailed engineering procurement, erections, commissioning, and operations in a way providing lots of strength to the projects. And this will enable us to carry out the projects in a cost effective manner and in the fastest manner to take this business to the great heights. Thank you very much and I’ll hand over to Sudhir Hoshing who will talk about the road business. Thank you very much.

Mr. Sudhir Hoshing ‐ Head Roads, Reliance Infra

Good morning, this is Sudhir Hoshing. We in roads have already become the largest private NHAI concessionare even with our late entry in to the road sector. And we hold around 9% of the share. We are also the largest developer for the 6 laning projects where we are developing 3 projects of approximately 380 km. Totally, developing 11 projects of total length of 970 km and cost of those projects is 120 billion. We are looking for more projects in express ways, mega highways, and specialty projects which are coming from NHAI and states. We recently have started our tolling in ‐ Road from October’10. And in this the toll was on manual mode which we changed within 7 days into electronic mode. All the toll booths are coming in electronic mode. We have now 3 revenue generating projects, two in and one is Pune Satara. And we are going to start another 5 projects in this financial year. During this period we have signed two more agreements with NHAI that is for Delhi and ‐. The appointed date for both the projects has yet to start, but our offices, our people people, project directors etc. are already in place. They are working on the land acquisition, they are working on the toll plazas. And by the time we have the appointed date started, we will be fully geared up with the work. And construction of balance projects i.e 3 projects in Tamil Nadu that is TK toll road, TD toll road, SU toll road these are in full swing and they are also expected to be commissioned this year. The another 2 projects PS toll road and JR toll road the work is going on quite smoothly and on schedule. In JR toll road we are expecting to finish our work at least a year before the schedule time. We have around 6,500 people working on different sites and that is expected to double by the time we start Delhi Agra and Hosur Krishnagiri projects. We will soon start the work for Kandla‐ and Pune‐Satara where we have already started toll . We are the first developer who have introduced the enterprise toll management system wherein we can check from our headquarters all the tolling procedures which are going on, all the operation which is going on at site, all the different sites at a time from one single console. To achieve this we have put a lot of our team O&M team, the design team, the project management team, HR team are working all the time from headquarters. And there are a lot of people who are at site, very senior people in construction who are taking all the effort that all the projects run on time and complete it before the schedule. In headquarter itself we have more than 85 people who are working in different categories into design, project management etc. We are seeing that all our projects will work and will be finished before time.Thank you very much.

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Mr. K.P. Maheshwari ‐ Head Metros, Reliance Infra

My greetings to everyone. Reliance Infra is the largest metro player in the country with 3 projects in the portfolio out of which 2 are in Mumbai totalling about 45 km and 1 in Delhi which is about 23 km. The total cost of the project aggregate is about 16,000 crores. As my other colleagues have spoken, the key to success in the infrastructure sector with its strong thrust on construction and operations and maintenance is having a very strong team. In‐house very strong team and that is what we have endeavoured to do. In the metro business also we already have more than 600 people in the in‐house team out of which more than 150 engineers are there, equal number of technicians and ITI diploma holders are there. The idea is to keep growing and this does not include the number of people which are required for operations and maintenance which have been outsourced. If we include all of them, the number will be almost double. Taking you quickly through the 3 projects, in the Delhi airport express project we have been ready for commissioning for quite some time. All our construction is completed and we are waiting for just 2 statutory approvals; one is the fire approval and the other is safety clearance from the Commissioner of Railway Safety. Being the first private sector project in the history of railways, and with very stringent rules and regulations there is some amount of additional caution which is being displayed by all the statutory agencies as we await the clearances. We have obtained clearance for one of the stations just yesterday and for the other two stations we expect next week and thereafter the safety clearance may be in another 3 or 4 days. So we are very certain that we will start the commissioning of Delhi Airport Express by the end of this month. We have received 7 trains even though in the beginning we don’t require so many trains. We will start off with a slightly lesser frequency.. All the trains have been tested. Trial runs are in advanced stages and on the commercial front the lease rentals for the retail spaces in the stations they have been negotiated. As the stations take a final look now more and more retailers they are flocking to us and we believe this is the right time for us to negotiate and get the best deals. So we will be closing most of the space on the retail side within the next 2 or 3 months. On the , 70% of the work has been completed. We are ahead of schedule and we hope to complete the project next year. Our target time frame was Sep 2012 and contractually this time frame should get extended by another 15 to 24 months because of the delays in getting the land and ROW from the Government of Maharashtra and MMRDA. But notwithstanding those constraints from the ground, we are ahead of schedule and we hope to complete the project next year. If we divide the metro project in to 2 broad parts, the civil portion and the non civil portion, on the non civil portion which is the rail system and all the other equipment we are right on schedule. Our detailed design and engineering is completed. All our equipments have been manufactured and most of them have been delivered to the site. On the civil portion of the viaducts and the station works our progress has been quite good. We need to keep the critical paths the western railway bridge and the bridge over the Western Express Highway under close focus and we are doing it on a very regular basis. We have spent more than 1,300‐1,400 crores already and this does not include the amount of LCs which have been opened. And we have been getting the viability gap funding from MMRDA on time. More than 270 crores is already received till date. There is a large team despite the tremendous shortage of skilled labour all over the country. There is a large contingent of about more than 2,500 people working on the ground and as I said we hope to complete the project next year. And as we prepare for the commissioning next year the O&M organization has been readied Veolia is our French partner and they are one of the largest O&M operators in the world in the transit business. And already number of key positions more than 40 people have been recruited and training is under way both in India and abroad. And finally on the project, we signed the concession agreement some time in January and we were supposed to achieve financial closure in 9 months time. And we are happy to say that we have done that. We have tied up the entire debt of about 7,000 crores and the preliminary design and engineering is largely completed. We have whatever lessons were learnt from line 1 taking into account the constraints of working in a congested city like Mumbai, we have taken all of them into account and we will ensure that the construction of line 2 is much more smooth and expeditious. We have taken a number of steps in this direction the alignment which is the most important thing. We have finalized it with MMRDA and while doing so we have ensured that we simply avoid all those areas where there is lot of encroachments and ROW constraints. All the major surveys are being completed whether it is a topographical survey or the geotechnical investigation, everything has been completed. We have appointed again Spectrum

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which is one of the leading civil and track consultant in the world for doing our consultancy and their team is already working. And we are on schedule. We have finalized most of our contract documents and we will commence our tendering activity in the next 1‐ month time. So we are on schedule to start our construction in the first quarter of the next calendar year. So these are the 3 projects. And we will continue to look at good opportunities which come along in the sector in the near future and participate in the same. Thank you.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

I’ll just touch briefly on some of our other verticals. Sea link that we had signed a concession agreement beginning of the year, the detailed geo technical design, detailed design, everything is all done. All the key consultants are there. The financial closure is expected very, very shortly. And currently we are looking forward to taking over the bridge as the MSRDC completes their part of the condition precedents. And this will become, the construction is expected to start very early next year. We expect to complete this bridge in less than 3 years from start of construction, which compares very capably with the 12 years that it took for the first link to be done. On the airport side, we have a small business. We have the 5 brownfield regional airports in Maharashtra, which we had won on competitive bidding. We have just completed little less than 1 year of operations. From zero flights which were operating in those 5 airports Nanded has got 96 commercial flights a month, Latur has got 32 scheduled commercial flights per month. There are more than 30 chartered flights operating at these 5 airports. Number of passengers that are using the airports are now in the range of about 8,000 a month. The master plan is in the final stage of being ready. These are 95‐year concessions and with no sharing with the government. With the huge real estate potential and everything thrown in we expect that we will be EBITA breakeven in our very first year of operations. On the cement side which you will hear much more in the time to come, we are currently at the development stage. We have got 2 projects which are ready for going in to execution. These are the 2 projects in Madhya Pradesh and Maharashtra where we have secured the limestone reserves, the land, received the stage 1 environment clearance, we have initiated the vendor selection, equipment order everything. The financial closure for our Madhya Pradesh project is also done. And we expect that this project will get into execution and be commissioned by FY 13. Briefly touching on our strengths, the company decides looking at extremely attractive infrastructure sector is matching it with a very sound balance sheet and a healthy balance sheet.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Okay. With the infrastructure which is now being regarded by everybody as the key growth requirement for the country, we have got a very, very sound balance sheet. Our net worth on a consolidated basis is 21,500 crores which gives us a book value of share of Rs.880. As mentioned, we have a dedicated team of professionals. We are adding more engineers and professionals to our team every month. We have more than 25,000 people working at our various infrastructure projects and more than 15,000 people working at our various EPC power projects. With this I will close from my side and we’ll open it for questions and answers that you all might have. Thank you.

Moderator – Melissa

Thank you. Ladies and gentlemen, we will now begin with the Question and Answer Session. At this time if you would like to ask a question please press “*” and then “1” on your touchtone telephone. If you wish to withdraw your question from the question queue, please press “*” and then “2”. Participants are requested to use only handsets while asking a question. Anyone who has a question may press “*” and “1” at this time. The first question is from the line of Mr. Prakash Goel from ICICI Securities. Please go ahead.

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Mr. Prakash Goel ‐ ICICI Securities

Yeah good morning every one. I have 5 questions. Hello.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah.

Mr. Prakash Goel ‐ ICICI Securities

Okay. I have 5 questions. One starting with Delhi Airport Express, there was a news article about penalty. Has there been any penalty on this project? The other question I have is right now how should we look at the accounting of 2.47 billion because the new release of stay by MERC and how much does it impact profitability? Third question is the medium term PPA with KSK, Abhijit Group, and R Power like you know in case is it a PPA kind arrangement in case of like you know lower demand how would we tackle it? And the last 2 questions are the EPC guidance for the full year and the cash level as of now.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah, I’ll quickly answer those questions. As per the concession agreement, there is a time which is due for late start up.

Mr. Prakash Goel ‐ ICICI Securities

Okay.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

We had asked DMRC to give us a 7‐month extension owing to the various delays at their end for handing over the structures to us. And these are well documented. DMRC in turn had given us just a 1‐month extension. This is under discussion with DMRC. DMRC has fined us 20 crores so far for late start up, but it is under discussion and we are very hopeful that we will get the 7‐month extension that we need. Which means that we will be starting actually 5 months ahead of schedule. On the lifting of the stay, the 247 crore has been recognized as income. That reflects in this quarter’s accounts. We are conservative in our recognition of regulatory assets. The third question was the medium term power. This is the standard PPA. So you know they have to supply and we have to buy. And on the EPC book, I had mentioned to you that 24,000 crores is our order book as of today. And we are at advanced levels of closing on some of the large power orders.

Mr. Prakash Goel ‐ ICICI Securities

You know I was trying to understand what is the guidance for revenue accounting in this year? You mentioned 45 billion in the previous quarter. So do we maintain that guidance.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah, for the time being I think for this year you will find because we start recognizing the revenue only after the project crosses 10% of completion. So this year the guidance is what we had given earlier in the year. But for next year I think you will see a very exponential increase in the top line and margins of EPC.

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Mr. Prakash Goel ‐ ICICI Securities

Fair enough. The cash level and the balance sheet end of quarter.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

The total cash equivalent is around 7,000 crores. And this is being right now with the execution going on you will find that these are getting deployed throughout all our assets.

Mr. Prakash Goel ‐ ICICI Securities

And how much the 247 crore impacted the profitability on a standalone level?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

We had it impacted the profitability by the same amount.

Mr. Prakash Goel ‐ ICICI Securities

So if I take this away, the PBIT for the quarter would have been just above 30 crores? On a stand alone the PBIT reported is closer to 270 crores.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah.

Mr. Prakash Goel ‐ ICICI Securities

If I take away this amount, would it be fair to read it like you know there would not have been any much profit in the electricity segment?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

No, but this is profit, this is money due to the company. So it is you know I mean you can’t take away 247 crores.

Mr. Prakash Goel ‐ ICICI Securities

No, that I completely agree on it. I am trying to understand because of this release of stay order the profitability had been at 276 crores out of which 247 crore came on account of accounting for this increased tariff.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

No, but we had taken a hit on our Q1 results. In the Q2 also the stay has been removed only in September.

Mr. Prakash Goel ‐ ICICI Securities

Okay. So only for 1 month you had the benefit and in the …

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Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah. That’s right. If I had the benefit for the whole quarter, anyway that profit would have accrued.

Mr. Prakash Goel ‐ ICICI Securities

Okay. And last thing is that the fine you mentioned for Delhi Airport Express what has been the amount?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

20 crores.

Mr. Prakash Goel ‐ ICICI Securities

Okay. That’s all from my side. Thanks a lot sir.

Moderator – Melissa

Thank you. The next question is from the line of Mr. Atul Tiwari from Citigroup. Please go ahead.

Mr. Atul Tiwari ‐ Citigroup

Yeah, good morning sir. Sir why was other income so low in this quarter?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah, see the other income includes our investments in FMP, the dividend income that we received in our various investments as well as Forex mark to market. It’s mix of all three. So there were some Forex losses in the mark to market. And that is the reason for the small other income loss.

Mr. Atul Tiwari ‐ Citigroup

Okay sir. And sir this 2.47 billion I mean would it be right to say that the associated cost you know on this 2.47 billion was booked in earlier quarter?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

That’s right including the current quarter.

Mr. Atul Tiwari ‐ Citigroup

Okay so based on associated cost in current quarter also.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah, absolutely.

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Mr. Atul Tiwari ‐ Citigroup

Okay. How much would that be sir I mean any ballpark or rough number.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

I mean it will be fairly substantial.

Mr. Atul Tiwari ‐ Citigroup

Okay. And sir at the time of briefing, in transmission segment there was some talk of some regulatory change in 2011 which will open up a large opportunity. What is that regulatory change? Can you throw some more light on that?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yes. See as per the current situation, the Central Transmission Utility decides which projects they will give to Power Grid. And if at all any projects which are to put up for competitive bidding. So the number of projects coming up for competitive bidding are very, very few. As per the tariff policy, as per the recommendation of CERC, as per the recommendation of MOP and the Planning Commission, they have come very hard saying that all future transmission projects of center and state should be awarded only through competitive bidding. Which means that if you are going to add say 12th plan 1,00,000 mega watt of capacity and you take 2 crores of mega watt for associated transmission line, there is a potential opportunity of 2,00,000 crores on transmission business in which all the private players and all the state/central players will compete on competitive basis. So that’s what my colleague had mentioned.

Mr. Atul Tiwari ‐ Citigroup

Okay sir and the decision on this has been taken and it is final.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah. This is recommendation from each of the people who decide.

Mr. Atul Tiwari ‐ Citigroup

Okay sir, thank you sir. Thanks a lot for answering my question.

Moderator – Melissa

Thank you. The next question is from the line of Mr. Abhishek Tyagi from CLSA. Please go ahead.

Mr. Abhishek Tyagi ‐ CLSA

Good morning everyone. Sir a couple of questions on the road project. Now you have 3 road projects on which you are collecting toll 2 in Tamil Nadu and one in Pune – Satara. How has been the traffic sir, vis a vis your estimate for these projects?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

They are in line with our estimates.

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Mr. Abhishek Tyagi ‐ CLSA

You know the first quarter conference call you said you know the Tamil Nadu project there were some problems in terms of traffic and they were low. So have they improved in the second quarter?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah, there has been an improvement. And we expect that we are working with the NHAI to change our tolling booth. And once that happens I think we will see further accretion in our revenues.

Mr. Abhishek Tyagi ‐ CLSA

Okay. Sir the difference between the standalone and the console profit is about 190 crores. You know what is the major contribution coming from _.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

We have all these SPVs. We can do it off line. There are the Delhi business. There are all the SPVs, infrastructure SPVs.

Mr. Abhishek Tyagi ‐ CLSA

Okay. And sir there has been an increase of about 5,500 crores in loans and advances, you know YOY. How do we explain that?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

See, loans and advances is made up of there are essentially 3 items to it. There is an increase in the regulatory assets. Then there is EPC advances given for vendors. And also the money that we are putting in to our various SPVs is currently showing in many cases as share application money which shows as loans and advances.

Mr. Abhishek Tyagi ‐ CLSA

Okay and sir the standalone numbers again, there’s a negative other income of about 50 crores, you know so why is that?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

I just mentioned that in my previous answer.

Mr. Abhishek Tyagi ‐ CLSA

Thanks sir.

Moderator – Melissa

Thank you. Before we move on to the next question, we would like to request participants to limit their questions to 2 per participant during the initial round. The next question is from the line of Mr. Rakesh Vyas from HDFC Mutual Fund. Please go ahead.

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Mr. Rakesh Vyas ‐ HDFC Mutual Fund

Yeah, hi. Good morning gentlemen. Actually can you share the strategy of the Mumbai license area regarding the short term power purchases as to whether you enter into what kind of duration for power purchase agreements etc.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

By short term my definition is 1 year. And we had contracts with many vendors who supply power to Mumbai for the year FY 11. These were executed at the beginning of the year. These are in force. Besides that some peaking power and all that that we need on a day to day basis we are buying from the exchange and from other sources. If you know that Bombay city per say is power short. Take all the power of Reliance and all the power of Tatas, Bombay city is still about 5 to 600 mega watts short. And Bombay city enjoys 24 x 7 round the clock power. So the balance power has to be imported.

Mr. Rakesh Vyas ‐ HDFC Mutual Fund

Sir if I look at you and Tata’s are competing, I think in the Mumbai city itself, they bought power in the second quarter at an average cost of Rs.3.8 whereas ours was close to Rs.6. Any specific reason for such a huge difference?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

The reason is that they have got 100% of regulated power. And as per the last power allocation, the entire shortage of Mumbai is being procured currently by Reliance Infrastructure. As I mentioned in my earlier talk, that this is a strong recommendation by the Government of Maharashtra Committee to re‐look at the allocation. This is also the recommendation of ASCI report. And MERC has conducted 2 days of complete hearing where 150 speakers spoke and they will come out with an order on the re allocation of this power we expect very shortly. That in turn will bring down our average rate dramatically and increase the rates of our competing utilities.

Mr. Rakesh Vyas ‐ HDFC Mutual Fund

Okay. Actually we bought close to 300 million units in second quarter from third party, which was at Rs.3.8. So I was just trying to understand we bought close to 1,000 MUs.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

I don’t think so. Because according to us the BEST and Tatas are both surplus in power. In fact we are buying their surplus power.

Mr. Rakesh Vyas ‐ HDFC Mutual Fund

Okay. And sir what would be the regulatory assets on book for our distribution companies both in Mumbai and Delhi currently?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Bombay I think is around 2,000 crores.

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Mr. Rakesh Vyas ‐ HDFC Mutual Fund

Okay.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

And Delhi is what 1,500 crores.

Mr. Rakesh Vyas ‐ HDFC Mutual Fund

Combine sir?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah.

Mr. Rakesh Vyas ‐ HDFC Mutual Fund

Okay, thank you so much sir. That’s it from my side.

Moderator – Melissa

Thank you. The next question is from the line of Mr. Sumit Kishore from JP Morgan. Please go ahead.

Mr. Sumit Kishore ‐ JP Morgan

Good morning sir. Thanks for taking my questions. My first question is could you please explain the difference of the standalone and the console EPC income. At the revenue level on standalone basis EPC revenue was Rs.8.1 billion and console it was 6.8. While at the EBIT level you know the numbers reported for the segment are more or less same both at console and standalone level.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah. See we had the transmission project of WRSS, which the top line got removed in the consolidation. That’s the difference. We have not been able to recognize the top line in our consolidated numbers.

Mr. Sumit Kishore ‐ JP Morgan

And why is it that you know the knock off had to be done?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

That’s because of the 100% owned WRSS, but that in future we have got the clearance that we will be able to give a true and fair picture by showing the actual revenues. Future projects will show the full revenue in the EPC.

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Mr. Sumit Kishore ‐ JP Morgan

Okay. My second question is on you know you spoke about the IT consultancy projects won by Reliance Infrastructure. What is the size of these projects and over what period of time do you expect to execute them and what is the revenue booking that will accrue from these projects?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

These are not extremely large projects in terms of top line. The key thing is that we are being recognized as the people with the highest amount of knowledge in the sector. And we are competing with the , Wipros of the world in providing IT consultancy to the various SEBs. And that is one aspect of it. Second is when we do consultancy for say Gurgaon, , wherever, we have an access to complete knowledge in those areas. So as and when the Gurgaons of the world come up for franchising, we have that competitive advantage. So it is more from the overall strength side and the strategic side than actually top line and bottom line.

Mr. Sumit Kishore ‐ JP Morgan

Okay. And my last question is you know on the upfront payment of Rs.16.4 billion that is due to MSRDC for acquiring tolling rights on BWSL, when would this payment be made and you know yes and could you clarify when you would commence tolling on Bandra – Wroli?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

As per the concession agreement, the date is some time end of December. We are ready to make the payment. There are certain CPs which have to be done, completed by MSRDC which we have intimated to them so the moment MSRDC completes those CPs we will be in a position to take over the tolling by the end of December.

Mr. Sumit Kishore ‐ JP Morgan

By which time you would have tied up the funds for the project.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah.

Mr. Sumit Kishore ‐ JP Morgan

Okay, that’s all from me. Thank you sir.

Moderator – Melissa

Thank you. The next question is from the line of Mr. Vishal Biraia from Batlivala & Karani Securities. Please go ahead.

Mr. Vishal Biraia ‐ Batlivala & Karani Securities

Good morning sir. One question related to the EPC business. What all projects would contribute to the 807 crore revenue?

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Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

We don’t give that breakup by project.

Mr. Vishal Biraia ‐ Batlivala & Karani Securities

On a rough basis.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

No, I don’t think we, we’ll have 10s of projects, you know we don’t give project by project detail.

Mr. Vishal Biraia ‐ Batlivala & Karani Securities

Yes sir. You have referred the Mumbai Licence Area matter to the Competition Commission for their opinion. Any developments there?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

No we haven’t referred the matter. This was referred to by MERC. And Competition Commission has asked MERC to first take a decision on the matter and then only Competition Commission can advice them.

Mr. Vishal Biraia ‐ Batlivala & Karani Securities

Thank you.

Moderator – Melissa

Thank you. The next question is from the line of Mr. Nikhil Salvi from IDFC Securities. Please go ahead.

Mr. Nikhil Salvi ‐ IDFC Securities

Yeah, this is Ashish. Good Afternoon sir. Hello.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah.

Mr. Ashish ‐ IDFC Securities

Sir, couple of questions. One you mentioned that there is a mark to market loss which is factored in the other income. Could you please quantify that?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

We don’t give the line by line details.

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Mr. Ashish ‐ IDFC Securities

Okay, sure. Sir second question. Out of your EPC order book of 24,000 crores sir how much of that would be broadly under operation I mean under construction right now and on how much would you still be not you know working on?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Right now everything is under construction excepting the last 4 road projects that we have got. Everything is under construction, but some of the projects have not achieved the 10%. So that is why the revenue is not being recognized. But you will find that in coming quarters, almost all the projects will be crossing the threshold so it will become a much better picture of the work being done by the EPC people.

Mr. Ashish ‐ IDFC Securities

And sir we believe that we should be on track to meet our 45 billion guidance for the year.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah, we are on track.

Mr. Ashish ‐ IDFC Securities

Sir, the last question, sir. I know it has just been a month since you started tolling on Pune‐Satara, but if you could indicate how have the numbers been in terms of traffic or how has it been generally?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

The traffic has been in line with our bid assumptions. What happens is this tolling was being done manually by the local people. So in the first month there is resentment when the tolling goes to a large company, because you know they lose lot of income which they were making. The total revenue that NHAI will get has gone up several times more. So initially there is some resentment from the local people who do not want to pay toll or from the local people who were collecting toll, but I think the number of cars and the total toll that we are getting is very encouraging.

Mr. Ashish ‐ IDFC Securities

Sure. And sir just last thing on you know this 247 odd crores that you have recognized because of the lifting of the stay, so that would now you know have to be approved in the tariff order post which you know it could be recovered by way of tariff. Until that it would be till that time it should be sitting as you know amount recoverable, recoverable debtors.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah.

Mr. Ashish ‐ IDFC Securities

Right understanding sir?

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Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah.

Mr. Ashish ‐ IDFC Securities

So your current you know increased tariff should take care of only your future recovery and not really of this 247 crores which should be recovered once the new tariff order has been passed.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

That is one. Two is there is also a lot of other things of cross subsidy, reallocation of power, the Bombay power being in Bombay which are lying with MERC. Each of those decisions will help us favourably that without even a tariff increase will start depleting into our regulatory assets.

Mr. Ashish ‐ IDFC Securities

Sure. And sir if you could just indicate the regulated equity you have in the Mumbai distribution business.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

It is 1,800 crores.

Mr. Ashish ‐ IDFC Securities

Okay. That should be entire license area of the regulated equity.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

True. This has been done at the 70:30 basis.

Mr. Ashish ‐ IDFC Securities

Sure. I get it.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah, so the appropriate debt has also been _.

Mr. Ashish ‐ IDFC Securities

Absolutely, yeah. Thank you sir.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah.

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Moderator – Melissa

Thank you.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Last 2 questions can we …

Moderator – Melissa

Sure sir. The next question is from the line of Mr. Vaibhav Jain from Religare. Please go ahead.

Mr. Vaibhav Jain ‐ Religare

Hello sir. Sir I just needed a clarification you indicated that on console basis when you report EPC revenues, you won’t be knocking off revenue from subsidiaries from here on. So do we expect that change from Q3 onwards or how does it happen?

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Yeah, you can expect the change from Q3.

Mr. Vaibhav Jain ‐ Religare

Okay, and this relates to all the segments, the transmission or metro or you know roads.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

That’s true.

Mr. Vaibhav Jain ‐ Religare

Okay. Sir my second question is on the loans and advances amount of Rs.132 billion. You indicated that you know Delhi and Mumbai have around 3,200 crores of regulatory assets. Can you give the remaining you know composition especially inter corporate deposits. What would that be and then EPC advances.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

We don’t give these details.

Mr. Vaibhav Jain ‐ Religare

Fair enough sir, thank you.

Moderator – Melissa

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Ms. Rupa Shah for closing comments. Please go ahead.

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Ms. Rupa Shah – Prabhudas Lilladher

Hello.

Moderator – Melissa

Yes, please go ahead.

Ms. Rupa Shah – Prabhudas Lilladher

Yeah. Thanks a lot the management of Reliance Infra for taking the time out for this call. I would like to also thank the participants for attending this call. Thank you very much everybody and have a great weekend. Bye.

Mr. Lalit Jalan ‐ CEO and Whole Time Director, Reliance Infra

Thank you.

Moderator – Melissa

Thank you gentlemen of the management. Thank you Ms. Shah. Ladies and gentlemen, on behalf of Prabhudas Lilladher, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.

END.

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Reliance Infrastructure

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