Reliance Infrastructure Q2FY11 Post Result Conference Call Transcript Representative: Mr Lalit Jalan, 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 Reliance Infrastructure 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 India’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 Page | 1 Reliance Infrastructure company. We will have the Delhi 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 Mumbai 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 Maharashtra 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. Madhya Pradesh 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.