The Anil Dhirubhai Ambani (ADA) group-promoted Reliance Infrastructure (R-Infra) plans to commission infrastructure projects worth over Rs 10,000 crore within the next one year. The company, which reorganised its businesses into verticals like transmission, distribution and roads, is pursuing opportunities to unlock more value for its shareholders, says CEO Lalit Jalan in an interview with P B Jayakumar. Edited excerpts:
You have 730-km road projects worth over Rs 7,250 crore and aim to increase this portfolio to over Rs 20,000 crore by 2012. How will you fund the development of these road projects and what is the return on investment?
We are well-placed to fund our existing and future projects due to sufficient cash in our balance sheet, amounting to over Rs 8,000 crore. Also, the existing business is generating over Rs 1,300 crore a year, which is expected to increase once more assets become operational. We bid only for projects that give us an internal rate of return of 20-30 per cent. All the projects are expected to be completed in the next two-three years.
What about the total equity required for R-Infra in the next three-four years? How will you raise this money?
We have funds to develop all existing R-Infra projects across the verticals — transmission, roads, Metro and airports. Total equity required for existing projects is close to Rs 2,800 crore over the next three years. We have a gross cash balance of Rs 8,000 crore as of September 2009 and yearly cash flows from existing business of Rs 1,300 crore, which can be used to fund the expansions. Further, we will also receive funding from the ADA group.
Among the reorganised verticals, which one will be the first to go for an initial public offer and when do you plan to list it?
We are currently developing verticals — like transmission, distribution and roads — and will list them at an appropriate time with an objective to fund further growth and unlock value for shareholders as we did in the case of R-Power. At present, we do not have a planned time-frame for listing in the near future.
Infrastructure development is heavily dependent on government funds and policies. Do you think it is a safe bet in the long term for a company of your scale?
We were initially present in transmission and distribution sector where growth was predominantly dependent on government initiatives. Rather than wait for growth opportunities, we diversified into infrastructure for its high growth potential and to leverage the complimentary skill sets available with us. We had recognised the potential of the infrastructure sector in early 2006 and accordingly initiated building capabilities and competencies to capitalise the opportunities. We partnered with the world’s best, like Veolia of France and CAF of Spain for Metro rail, Black & Veatch of USA for developing super critical power projects and ASA Mexico for airport development. We also hired the right personnel and have developed considerable project management experience across all verticals.
Already, we have emerged as the largest private player in the infrastructure space. Like any other infrastructure project, execution is the most challenging part of the business. Land acquisition, regulatory clearances and vendor management are some of the critical challenges. We are aware of these challenges and take appropriate action to mitigate risks. Now, we are present in various verticals that give us a natural hedge due to our diversified portfolio. We are currently developing 14 projects across roads, Metro and transmission sectors worth over Rs 27,000 crore.
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The current order book of your engineering, procurement and construction (EPC) business is close to Rs 19,600 crore. Are you expecting any major addition to this in the near future?
Our EPC work is predominantly in the power sector and our associate company R-Power is developing projects worth over 33,780 Mw. We will actively take part in EPC opportunities that come out of this and from other projects outside. We have developed skill sets in developing Metro and road projects and these sectors will offer great opportunities.
What are your other plans in the urban infrastructure segment and power sector?
We have a presence in all the three segments of power — generation, distribution and transmission. Reliance Power, in which R-Infra is the major shareholder, focuses on generation. We are already the largest private sector player in the transmission sector and, thus, have a first-mover advantage. We are developing three transmission projects worth Rs 4,300 crore and have identified a total opportunity of Rs 58,000 crore in the sector in the next three years. We also plan to participate in projects with approximate cost of Rs 2,500 crore in the Central sector and will bid for projects by Haryana, Rajasthan and Maharashtra in the state sector. The total bidding opportunity in the near future is Rs 16,000 crore.
In distribution, we are taking part in franchisee opportunities and also look for privatisation opportunities in line with the Delhi model. In addition to this, R-Infra has been empanelled as the IT implementation agency with the Power Finance Corporation for the State Electricity Boards.
In urban infrastructure, R-Infra is the only private sector player developing three metro projects totaling Rs 16,200 crore in Mumbai and Delhi. We are also the sole bidder for the Western Freeway Sea Link project, costing Rs 5,100 crore. We are awaiting the Letter of Intent from the Maharashtra State Road Development Corporation, the nodal agency which is in charge of this project. Mumbai Metro I is expected to be commissioned by the end of 2010, 18 months ahead of schedule, and we are waiting for signing the concession agreement for Mumbai Metro-II.