Reliance Infra NFO Presentation

8/14/2019 Reliance Infra NFO Presentation

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Equity Markets

India Infrastructure

Funding Options

Investment Opportunities

Reliance Infrastructure Fund

Table of Contents


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Indian Equity Markets Visible Change

Now

Oct 2008 Now

- Looks remote

- Liquidity all around

- Risk appetite returning

- Equity raising easier, change in B/S

- Biggest Election verdict since 1984

- FIIs becoming big buyers

- Major global banks failed, more probable

- Liquidity evaporated

- Risk aversion

- Companies facing capital shortage

- Election uncertainty in India

- FIIs major sellers


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The Catapult

- Election - A big positive game changer

- Accompanied by improving monetary and economic conditions

- Governance, infrastructure and inclusive growth looks to be key goals of

incumbent Government

- FII/FDI inflows can be very strong

- Earnings upgrades may follow

- Sustainable attractive returns from Indian equities look possible

What can go wrong?

- Another global financial catastrophe

- Big disappointment in pace of Government actions over next 6 months

Equity Markets Our View


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Youngest population in the world

Largest middle-class and consuming population

Domestic focused economy

Banking system proved to be amongst the healthiest

Global leader in services

Lowest cost producer in metals

Huge savings and investment rates

Source: Internal - RMF Research

Everything Going For India

However


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World Banks Global Competitiveness Report 2007-08

Inadequate supply of infrastructure

- Most problematic factor for doing business in India

India ranked 48th out of 131 counties in the Global Competitive Index 2007

- Ranked 67th on the quality of infrastructure

India lags behind in infrastructure facility usage compared to US & China

Source: Published Media, Global Research 2007-08

Infrastructure Miles To Go

Comparision of Infrastructure Facilities

Particulars India US China

Electric consumption per capita (KwH) 618 14240 1684

Roads per mn people (km) 2983 21443 1471

Steel Consumption per capita (kg) 34 357 244

Rail route per mn people (km) 56 755 57

Cargo handled at ports per capita (kg) 572 7953 4265

No. of passengers handled at airports per 1,000 persons 71 4780 151


7/367 of 36 Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB

Infrastructure Investment China Vs India

8.5% Of 2008 GDP(USD 380 Bn) 6% Of 2008 GDP(Rs. 267,356 Cr)


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Infrastructure Investment China Vs India

6% Of 2008 GDP(Rs. 267,356 Cr)8.5% Of 2008 GDP(USD 380 Bn)Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB


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Prime Minister Dr. Manmohan Singh

Our growth potential will be realized only if we canensure that our infrastructure does not become a

severe handicap

Source: CLSA Research April 2008

Realisation Very Evident

Dy. Chairman India Planning CommissionMontek Singh Ahluwalia

One of the critical constraints which holds back our

growth rate is really the quality of infrastructure

Ex-CEO Infosys, Nandan Nilekani

India has achieved excellence in human capital, butthe countrys shabby infrastructure is proving to be a

major stumbling block for the countrys development

CEO, Bharti Airtel, Sunil Mittal

Indian industry would expect significant initiatives inthe area of resource mobilization for infrastructure

projects

Chairman Tata Sons Ratan Tata

We have a large deficit in almost every infrastructuresector whether airports, power, roads, etc. This is an

area that needs large amounts of investment.

Ex Finance Minister P. Chidambaram

Infrastructure development is essential to sustain highgrowth rates in future


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Economic

Factors

Demographic

Factors

Global

Integration

Growing economy

Rising disposable incomes

Rising population

Increasing urbanization

Rising international

trade and travel

Inadequate road width,

poor riding quality,

low speeds

10-14% power

shortages, frequent

brown outs

Massive under capacityin railways for freight

and passenger traffic

Poor WSS is major

contributor to diseases

Delays, congestion,

fuel wastage in

air travel

High turnaround time,

poor connectivity

at portsSource: CLSA research, April 2008WSS: Water Supply & Sanitation

Factors Driving Demand For Better Infrastructure


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Source: Election Commission 2009

States with focus on higher development expenditure has proved to be a boon for the Ruling Party

GSDP: Gross StateDomestic Product

Now Also Political Pressure

Source: RBI: A study of budgets of 2008-09


12/3612 of 36 Source: Media Reports, Election Manifesto of Respective Parties

Manifestos Unanimous On Infrastructure

Trinamool Congress

BJP

DMK

Left

- Commits to an agenda for change guided by three goals:

Good Governance, Development & Security

- Investing heavily in infrastructure projects are at the top of our agenda

- Implement the Sethu Samundaram project early

- Super fast bullet train service between Chennai, Madurai & Coimbatore-Dedicated freight corridor is to be implemented between Chennai & New

Delhi

The party aimed at forming a secular, progressive and stable government

at the centre which would focus on economic reforms, industry, agricultural

development and adopt pro-people policies

-Reviewing of privatisation of infrastructure through PPP

- Emphasis on rural infrastructure

- Increased outlay on rural roads, electrification etc


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Manifesto makes intentions clear

- Increase public investment in infrastructure

- Ensure that India adds at least 12000-15000 MW of power capacity every year

- Rural electrification & reduction in distribution losses

- Implement a scheme to supply energy to poor families at affordable prices

- Promises a very significant increase in the share of nuclear power

- Connect villages through broadband network within 3 years

Source: Congress Manifest 2009

Strongest Government platform in India over the last 2 decades..& the opportunities could be substantial

Congress Manifesto


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Government approval to 37 infrastructure projects worth Rs.70,000 Cr from August,

2008 to January, 2009 alone

Under PPP mode, 54 Central sector infrastructure projects, in-principal or final

approval and 23 projects approved for viability gap funding in 2008-09

IIFCL to refinance up to 60 % of commercial bank loans for PPP projects involving

investment of Rs.1,00,000 Cr in infrastructure over the next 18 months

Source: http://indiabudget.nic.in

Intentions Evident In Interim Budget 2009

IIFCL: India Infrastructure Finance Company Limited


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Source: India Infoline Research, Department of shipping India, National Bureau of statistics China

The Size Of Opportunity

ParticularsIndia

(2008)

Year when

China

Achieved

China

(2007)

Expressways (Km) 200 1989 53,000

Air Passenger Traffic (Mn) 120 2006 186

Cargo Traffic (Major Ports) (Mn Tons) 519 1991 3,882

Power Generation Capacity (GW) 143 1992 720

Finished Steel (Mn Tons) 58 1991 465

Cement (Mn Tons) 218 1989 1,500


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Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07)

Source: Investment in Infrastructure during the Eleventh Plan published by The Secretariat for the Committee on Infrastructure

FYP : Five Year Plan

XIth FYP Infrastructure Investment

Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Total XIth

FYP

Power 74,205 92,829 116,541 146,914 186,038 616,527

Roads 51,352 54,318 58,729 67,901 79,516 311,816

Telecom 33,075 39,834 50,293 63,408 80,390 267,000

Railway 33,207 39,964 48,626 59,738 76,466 258,001

Irrigation 27,002 33,839 42,625 53,946 65,718 223,130Water Supply & Sanitation 25,840 31,110 37,868 46,555 57,754 199,127

Ports 9,691 11,740 14,271 17,397 20,841 73,940

Airports 6,223 6,459 6,814 7,296 7,956 34,748

Storage 3,777 4,098 4,446 4,824 5,234 22,379

Gas 2,984 3,454 4,005 4,651 5,407 20,500

Total Investment 267,356 317,645 384,218 472,630 585,320 2,027,168

Total (USD Billion) 65 77 94 115 143 494

Investment as % of GDP 6.0 6.5 7.2 8.1 9.2 7.5


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The projected investment in infrastructure sector in the XIIth FYP would be USD

1,128 Billion

Source: Planning Commission of IndiaEstimates: GDP to grow at 9% per year, GCFI as % of GDP to increase from 9% in 2011-12 to 10.25% in 2016-17

FYP : Five Year Plan, GCFI: Gross Capital Formation In Infrastructure

Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07)

Much Bigger Outlay In The XIIth FYP

Projected GCFI (XIIth

Plan)

2011E-12E 2012E-13E 2013E-14E 2014E-15E 2015E-16E 2016E-17E

GDP at Market Prices 6,347,900 6,919,300 7,542,000 8,220,800 8,960,600 9,767,100

Rate of growth of GDP (%) 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%

GCF in Infrastructure as a % of GDP 9.00% 9.25% 9.50% 9.75% 10.00% 10.25%

GCF in Infrastructure (Rs. Crore) 571,311 640,035 716,490 801,528 896,060 1,001,128

Total GCFI (Rs. Crore)

Total GCFI (USD Billion)

4,626,552

1,128


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Question marks on infrastructure spending

- Huge budgetary and fiscal deficit

- Past record on foreign flows so-so and not very robust

However, future looks brighter

- Avenues to control deficit in sight

- PPP

- Foreign investments


Plans Fine Show Me The Money

PPP: Public Private Partnership


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Subsidies as a contributor to fiscal

deficit is expected to decrease

Expected revenue from 3G

spectrum auction

Source: Ministry of Finance, Kotak Institutional Equities Estimates


Fiscal Deficit Likely To Reduce Going Forward

3 G Auctions Rs Crore

Bids at reserve price 8,590

Bids at 2x reserve price 17,180

Bids at 3x reserve price 25,770

Subsidy and Fiscal Deficit

2007A-2010E (Rs bn) 2007A 2008A 2009RE 2010E

Food 24,014 31,330 43,630 55,000

Fertilizer 12,977 27,060 47,500 31,700

Petroleum 2,699 14,080 78,820 28,100

Total 39,690 72,470 169,950 114,800

Subsidy/Fiscal deficit % 28 57 52 28


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Source: BloombergNote: The name of the companies mentioned above are for illustration purposes only

Divestment

Sale of residual minority stake in privatised

PSUs like VSNL(26%), Balco(49%) &

Hindustan Zinc(29%)

Divestment of profitable unlisted PSUs like

BSNL, DVC etc

Divestment of minority stake in listed PSUs

to reduce fiscal burden

Name Mcap(Rs. Cr)

Oil & Natural Gas Corp Ltd 212,026 74

NTPC Ltd 171,794 90

MMTC Ltd 118,137 99

NMDC Ltd 110,219 98

Bharat Heavy Electricals Ltd 99,884 68

Steel Authority Of India Ltd 68,276 86

Indian Oil Corp Ltd 56,049 80Power Grid Corp of India Ltd 49,791 86

GAIL India Ltd 38,955 57

Power Finance Corp Ltd 24,591 90

National Aluminium Co Ltd 23,517 87

Neyveli Lignite Corp Ltd 19,923 94

Rural Electrification Corp Ltd 12,446 82

Container Corp Of India 12,016 63

Mahanagar Telephone Nigam 5,572 56

Shipping Corp Of India Ltd 5,164 80Engineers India Ltd 4,320 90

Rashtriya Chemicals & Fert 3,603 93

Total 1,036,282

Divestment can give

5% Divestment 51,814

10% Divestment 103,628

Govt.Holding (%)


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Will be key infra-developers without needing resources from Government budget :

- NTPC: Cash on books as on FY08 is Rs15,360 Crs

It can develop 20GW of capacity without raising capital

- ONGC: Cash on books as on FY 08 is Rs 18,652 Crs

- Railways: Generating cash of over Rs20,000crs every year

- Others like BSNL, AAI, DVC also have enough cash to fund their projects

Source: Internal - RMF ResearchNote: The name of the companies mentioned above are for illustration purposes only

Cash Rich PSUs


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Source: Company, DEA PPP Database and Citi Investment Research and Analysis

Growth Rate of PPP Projects byvalue in the last 3 years over

previous 8 years is 104%

More than 117 PPP dealsclosed in last 3 years when

compared to 104 in theprevious 8 years

PPP Concept Gaining Credence

Sector % by Volume % by value

Road 71% 37%

Urban Development 12% 5%

Airports 2% 14%

Ports 14% 43%

Railways 1% 1%

Total 100% 100%

PPP Projects Awarded Sector Wise


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Government is targeting around 30% of the total funding to come from PPP

Schemes

- As compared to 17% in Xth FYP

- 4x times the investment by private sector in the Tenth FYP In XIth FYP, almost all sectors like power, roads, railways, airports etc, are going

to witness increased private participation

Source: Planning Commission of India

PPP : Public Private Partnership, FYP : Five Year Plan

Rs. Crore(At 2006-07 prices)

PPP & Privatisation

Power Road Telecom Railways Irrigation Sanitation Ports Airports Storage Gas TotalInvestment Target 616,527 311,816 267,000 258,001 223,130 199,127 73,940 34,748 22,379 20,500 2,027,168

% of Sector Share 30 15 13 13 11 10 4 2 1 1 100

PPP Oppourtunity 162,517 112,503 177,689 50,491 N.A 5,396 54,457 21,165 11,190 6,499 601,905

% of Private Share 26 36 67 20 0 3 74 61 50 32 30

Funding by PPP

30% of total Infrastructure Investment in 11th FYP


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Source: Planning Commission of India

Private Funding Gains Importance

FYP : Five Year Plan

Rs. Crore(At 2006-07 prices)

Funding Pattern - XIth FYP

Funding of XI FYP

Sectors Centre State Private Total Centre State Private Total

Electricity 102,463 97,553 91,834 291,850 255,316 225,697 185,512 666,525

Roads & Bridges 71,534 66,354 7,004 144,892 107,359 100,000 106,792 314,151

Telecommunication 49,013 - 54,352 103,365 80,753 - 177,686 258,439

Railways 108,950 10,402 307 119,659 201,453 10,000 50,354 261,807

Irrigation 13,617 97,886 - 111,503 24,759 228,543 - 253,302WSS 42,316 21,465 1,022 64,803 42,003 96,306 5,421 143,730

Ports 2,185 1,530 10,356 14,071 29,889 3,627 54,479 87,995

Airports 3,823 12 2,936 6,771 9,288 50 21,630 30,968

Storage 577 866 3,377 4,820 4,476 6,713 11,189 22,378

Gas 8,713 - 1,000 9,713 10,327 - 6,528 16,855

Total 403,191 296,068 172,188 871,447 765,623 670,936 619,591 2,056,150

X Plan XI Plan


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New Hyderabad Airport

Success Stories Of Infrastructure Privatisation

Mumbai Pune Expressway

Mundra Port


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Attractive returns - 16% in power (through PPA Arrangement), attractive double

digits in others over a 20-30 year period

Potential to invest huge sums of money given Indias need for infrastructure

Stable political environment with the current decisive mandate

Currency outlook - stable to appreciating Rupee

Liberal policies FDI allowed 74% to 100% in most infrastructure sectors

Source: Internal - RMF Research, CERC

Case For Foreign Investments In Infrastructure

PPA: Power Purchase Agreement


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Source: Grant Thornton

Private Equity An Important Source Of Funding


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Valuations very stretched

Political concerns at peak

Global scenario very scary and

hazy

Raising debt and equity

impossible a must for

infrastructure

Despite recent spurt, still attractive

Political stability for five years

Some stability. Investors will move

to higher growth economies

Interest rates plunge, debt

available, investors looking for

equity investments

Infrastructure Fund Why Now ?

2008 Now


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Source: BloombergNote: The name of the companies mentioned above are for illustration purposes only

We do not recommend any action based on the above illustration% Change in price from 2007-08 high is compared to prices as on 22ndMay 09

Valuations: Reasonable given growth

prospects


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A Reliance Capital

Introducing

Reliance Infrastructure Fund


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Investment in Equities of Infrastructure Companies : 65%-100%*

Investment in Debt & Money Market Securities : 0% - 35%*

Multi Cap Strategy

Investment with a medium to longer term horizon

* Please refer detailed asset allocation on slide no 33

Investment Strategy


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** including securitised debt up to 30%#An overall limit of 100% of the portfolio value has been introduced for the purpose of equity derivatives in the scheme. The margin money requirement for the purpose of derivative exposure will be as per the SEBI Regulations. The derivateexposure will be restricted to such limit so that the scheme does not leverage upon margin requirements

Investment Objective

Scheme Features

Equity & Equity Related Securities including derivatives engaged in

infrastructure sectors & infrastructure related sectors#

65%-100%

Debt & Money Market Securities **

0% - 35%

Nature of Scheme An Open Ended Equity Scheme

Benchmark BSE 100

The primary investment objective of the scheme is to generate long termcapital appreciation by investing predominantly in equity & equity related

instruments of companies engaged in infrastructure & infrastructure

related sectors & which are incorporated or have their area of primary

activity, in India & the secondary objective is to generate consistent

returns by investing in debt & money market securities

Proposed Asset

Allocation

Fund Manager Sunil Singhania

New Fund Offer Price: Rs.10/- per unit plus applicable load


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Load Structure : During New Fund Offer &Continuous Offer including SIP Installments

Waiver of Load for Direct Applications : As per SEBI Circular no. SEBI/MD/CIR no. 10/112153/07 dated December 31, 2007, no entry load shall be charged for direct applications receivedby the Asset Management Company (AMC) i.e. applications received through internet, submitted to AMC or collection centre/Investor Service Centre that are not routed through anydistributor/agent/broker

For Retail Plan:

Entry Load:

For subscription below Rs. 2 Crs 2.25%

For subscription of Rs.2 Crs & above & below Rs.5 Crs 1.25% For subscription of Rs.5 Crs & above - Nil

Exit Load:

For subscriptions of less than Rs 5 Crs per purchase transactions 1% If redeemed/ switched on or before completion of 1 year from

the date of allotment Nil If redeemed/ switched after completion of 1 year from the date

of allotmentFor subscriptions of more than Rs. 5 Crs : Nil

For Institutional Plan:

Entry Load : Nil

Exit Load : Nil

Choice of Plans/Options

Retail & Institutional PlanGrowth Plan:

Growth & Bonus Option

Dividend Plan :

Dividend Payout Option

Dividend Reinvestment Option

Minimum Application Amount

For Retail Plan : Rs.5000/-

For Institutional Plan: Rs.5 Crs

SIP

Available : Retail Plan

Mode of Payment :

Only through Direct Electronic Debit to the

investors bank account. This facility is offered

only to the investors having bank accounts in

HDFC Bank, Axis Bank

Scheme Features


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The views expressed herein are the personal views of the Fund Managers. The views constitute only the opinions and do not constitute any guidelines or

recommendation on the course of the action to be followed. Readers are strongly advised to verify the contents before taking any investment decision based on this

opinion. The above is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. The readers should exercise due

caution and/or seek independent professional advice before making any investment decision or entering into any financial obligation based on information, statement or

opinion which is expressed herein. These are not necessarily the views of Reliance Capital Asset Management Ltd. Neither the AMC, the trustees, the Fund nor any of

their affiliates or representatives assume any responsibility/liability for the accuracy, completeness, adequacy and reliability of information provided herein. The

information contained herein has been obtained from sources published by third parties. While such publications are believed to be reliable and we have made best

efforts to avoid any errors or omissions, however, neither the AMC, the Trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the

accuracy, completeness, adequacy and reliability of such information.

Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Co. Limited. Investment Manager: Reliance Capital Asset Management Limited. Statutory Details:

The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956.

Scheme Specific Risk Factors: Portfolio Turnover : Given the nature of the scheme, the portfolio turnover ratio may be very high and the AMC may change the portfolio

according to the asset allocation commensurate with the investment objective of the scheme. The effect of high portfolio turnover could be higher brokerage and

transaction costs. Due to these factors the NAV of scheme might be impacted. Terms of Issue: The Units are available at Rs. 10/- per unit plus applicable load during

the New Fund Offer Period and thereafter at applicable NAV based prices. The AMC will calculate and disclose the first NAV not later than 30 days from the closure of

the New Fund Offer Period. Subsequently, the NAV will be calculated and disclosed at the close of every working day which shall be published in at least in two daily

newspapers and also uploaded on AMFI site i.e. www.amfiindia.com and Reliance Mutual Fund website i.e. www.reliancemutual.com. General Risk Factors: Mutual

Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any

investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Past

performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. Reliance Infrastructure Fund is only the name of the Scheme

and does not in any manner indicate either the quality of the Scheme; it's future prospects or returns. The Sponsor is not responsible or liable for any loss resulting from

the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the

corpus. The Mutual Fund is not guaranteeing or assuring any dividend. The Mutual Fund is also not assuring that it will make periodical dividend distributions, though it

has every intention of doing so. All dividend distributions are subject to the availability of the distributable surplus in the Scheme. For details of scheme features apart

from those mentioned above and scheme specific risk factors, please refer to the provisions of the scheme information document. Scheme information document and

KIM cum application form is available at all the DISCs/ Distributors of RMF/www.reliancemutual.com. Please read the scheme information document carefully before

investing. The information contained herein has been obtained from sources published by third parties.

Risk Factors


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Reliance Infra NFO Presentation