Reliance Infrastructure has a healthy balance sheet, with a big cash surplus and an order backlog of Rs 21,500 crore (Rs 215 billion), but this has failed to impress investors. The Anil Ambani group firm's market cap has fallen to less than half of Reliance Power's, in which R-Infra holds a 45 per cent stake.

Lalit Jalan, the younger Ambani's Wharton classmate and CEO of R-Infra, tells Nevin John that the market will, over time, recognise these strengths. Meanwhile, the company will put in Rs 2,800 crore (Rs 28 billion) over the next three years as equity in various projects.

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Reliance Infra has low visibility as a brand compared to Reliance Power and Reliance Energy [Get Quote]. In most government records, the name of the company is still Reliance Energy. How do you plan to market R-Infra as a brand?

Reliance Energy enjoys high brand-recall value. Keeping this in mind, the board decided to retain the name for our energy distribution business. The name change to Reliance Infrastructure happened recently and will take some time to occupy top of the mind space.

Interestingly, the current market cap of R-Infra, which holds a 45 per cent stake in R-Power, is not even half (Rs 109.99 billion on March 20, 2009) of R-Power at Rs 24,100 crore (Rs 241 billion).

Currently, the market is severely under-pricing high quality assets, due to the economic turmoil and bearish sentiments.

There are several value drivers for R-Infra. The distribution assets in Mumbai, Delhi and Orissa make the company the largest private sector distributor, supplying to 6.5 million customers. The five power generation assets have aggregate capacity of 940Mw.

The engineering, procurement and construction division has an order book of Rs 21,500 crore (Rs 215 billion).

The infrastructure assets include six roads and two metro rail projects. We have a healthy balance sheet, with over Rs 10,000 crore (Rs 100 billion) of cash and cash equivalent, and debt of only Rs 5,000 crore (Rs 50 billion).

Above all, we have investments in R-Power. We strongly believe sanity will prevail and the market will appreciate the value in the above assets over time. We decided to buy back shares just because it is under-valued.

The downturn has hit the Anil Ambani group companies heavily. As a group company, how do you see the slowdown? Will you take steps to reshape R-Infra's businesses?

There has been no major change in strategy. All projects across the group companies are progressing as per schedule. We have a strong balance sheet, hence there is no need to raise further equity as on date. We are hiring people across verticals, as we see huge growth moving forward.

We have modified the implementation plan, based on the current market environment. Earlier we had envisaged foreign funding for power projects, but now we are progressing with entirely domestic funding, keeping the flexibility to switch to foreign debt whenever possible.

Analysts feel that there will be a reduction in order value, as many companies are looking at renegotiation. How is it with R-Infra?

We are pretty comfortable. The company had an order book of about Rs 21,500 crore (Rs 215 billion) as on December 31, 2008, up 159 per cent. The EPC division has a manpower strength of over 1,500 and is currently working on seven projects and implementing over 7,200 Mw of power projects.

Earlier, R-Infra had a plan to float a joint venture for the electrical equipment manufacturing business. Have you dropped the plan?

We have not dropped the plan. In collaboration with Shanghai Electric, we are examining the feasibility of setting up equipment manufacturing facilities for power generation, to cater to the domestic sector and to markets in the Middle East, Africa and South East Asia. The progress on the project will purely be on the basis of cost-benefit analysis.

How is the performance of your distribution business?

Mumbai distribution continues to remain the most efficient utility in the country, with aggregate technical and commercial losses of less than 11 per cent, when the country average is over 35 per cent.

The AT&C losses in Delhi have reduced to less than 20 per cent, from over 55 per cent in 2002.

The company has made substantial investment of over Rs 3,200 crore (Rs 32 billion) in the last six years in distribution infrastructure.

Do you see growing opportunity in power distribution?

We are proactively pursuing with various central and state authorities, demonstrating the key benefits of privatisation. Many states have expressed a desire to open the distribution business to private players. At present, Maharastra (five cities), UP (nine cities) and Bihar (four cities) have come out with bids for distribution franchisee.

R-Infra has given all the greenfield power generation projects to R-Power. But it is still running five generation projects. Does it mean the company will compete with R-Power in the future for bagging generation projects?

R-Power is the power generation company of the ADA group. It will develop, construct and operate all future power generation assets in India and overseas.

How much is the fund requirement for projects in the pipeline?

The total equity required for existing projects is close to Rs 2,800 crore (Rs 28 billion) over the next three years. About Rs 1,000 crore (Rs 10 billion) will be the equity contribution from R-Infra to various special purpose vehicles during 2009-10.

As we have surplus cash, there is no need to raise fresh capital. In any case, the existing business is generating over Rs 1,300 crore (Rs 13 billion) a year, and this is expected to increase as more assets become operational.

Are you using cash from the reserve for buybacks?

Of course. We have recently closed the first phase of the buyback programme and bought back 8.76 million equity shares for Rs 796 crore (Rs 7.96 billion). This is the largest buyback by any corporate in the country till date.

We have also initiated a fresh buyback programme of up to Rs 700 crore (Rs 7 billion) and have bought back over 1.1 million shares till date.

What are your overseas plans?

We feel there are huge opportunities in India in the verticals we operate. We will continue to focus and capitalise on domestic growth opportunities. We might also evaluate compelling opportunities available overseas.

The outlook for the next financial year?

It will be tight on credit availability and raising fresh equity by private players. But it will be a good period to execute large infrastructure projects for players with sufficient cash for equity in the balance sheet.

Moreover, resources like human capital and raw material will be easily available and at reduced costs, facilitating timely project completion within reduced costs.