SJVN

 SJVN

SJVN, NHPC, JPVL

SJVN, NHPC, JPVL

Muted debut for SJVNL; Jaypee Infra falls below issue price

State-run hydro power generation company SJVNL lost about 4% on its debut and closed at Rs25 on the BSE after kicking off its maiden trading journey at Rs28. The stock hit a high of Rs28 on May 20 and a low of Rs24.10 on May 21. The company had priced its IPO at the top end of the Rs23-26 price band following strong response to the issue. A discount of Rs1.30 per share was given to retail investors and employees. The SJVNL IPO was subscribed 6.64 times, kick starting the government's divestment programme for FY11 on a positive note. The QIB portion was bid 9.02 times, while the HNI segment was bid 3.38 times and retail investors segment was subscribed 3.11 times. The central government offered 41.50 crore of SJVNL, formerly Satluj Jal Vidyut Nigam Ltd., for sale through the IPO. With the successful completion of the IPO, the Centre's stake has declined to 64.47% from 74.5%. The Himachal Pradesh (HP) state government holds 25.5% stake in SJVN. the company reported a net profit of Rs7.75bn on net sales of Rs14.23bn for nine months ended December 2009.

Shares of Jaypee Infratech Ltd. fell on listing amid a weak market and closed well below the issue price of Rs102 per share on the BSE. The stock opened at Rs93, touched a high of Rs98.50 and a low of Rs90 before shutting shop at Rs91. Set up as a special purpose vehicle for the Yamuna Expressway, Jaypee Infratech had raised Rs22.5bn from the initial public offering (IPO) between April 29 and May 4. The 165 km, six-lane Yamuna Expressway will connect Noida and Agra, in Uttar Pradesh. The company currently has debt of Rs40.44bn. Jaypee Infra had priced its IPO in the band of Rs102-117 per share following lukewarm response, with retail investors getting a discount 5% on allotment. The issue was subscribed 1.24 times, with 27.39 crore shares bid against 22.17 crore shares on offer. The IPO comprised fresh issue of equity shares and an offer for sale of 6 crore shares by parent Jaiprakash Associates.

SJVNL IPO Review

Investors with a long-term horizon can subscribe to the initial public offering from the hydro power generation company, Satluj Jal Vidyut Nigam (SJVN).

Despite sound earnings prospects, the offer appears inexpensively priced compared with peers. At Rs 24.7 (the retail offer price at the upper-end of the price band), the offer values the stock at a price-earnings multiple of about 10 on estimated earnings for this fiscal. The price-to-estimated book value is 1.25 times. This is at a discount to NHPC's valuation of 1.53 times.

This despite SJVN having a superior return on equity (estimated at 15.5 per cent for 2009-10) than NHPC (8.3 per cent). The company also scores due to low leverage and better net profit margins than its listed peer. Earnings potential may also receive a boost from the revised CERC norms, which are yet to take effect. The dividends paid out in 2008-09 would result in a 3.13 per cent yield for the stock.

SJVN operates the 1500 MW Nathpa Jakhri Hydro Power Station project, a run-of-the river project on the Sutlej River in Himachal Pradesh. The company plans to increase this capacity to 5,500 MW over the next 10 years.

During FY-10, this project generated 7017 million units of power as against the annual design energy generation of 6,612 million units. The plant availability was 102 per cent wll above its normative plant availability factor.

The regulated tariff regime for SJVN results in pass through of interest rate fluctuations, hydrology risk, operations and maintenance and depreciation. Therefore, the company's earnings will continue to rise as long as it expands its power output and maintains higher plant availability.

CERC's new norms for power projects which promise higher return on equity are yet to be applied to SJVN, and this holds potential to boost profits. SJVN stands to benefit to greater extent than NHPC from these new norms, due to its higher equity component.

The Nathpa Jakhri project calculates its annual fixed charge, the key component in calculating tariffs, at a debt equity of 1:1 compared to 70:30 followed by NHPC. Higher efficiency and plant availability also place the company in a good position to earn higher incentives. However, the earnings growth over the next three years may remain muted, given that limited capacity additions are planned in this period.

The first of the additions — the 412 MW Rampur project — is expected to come up in 2013 and will add 27.5 per cent to the existing capacity. This project may entitle the company to carbon credits, which it can later trade to augment revenues.

The Rampur project is a cascade project for Nathpa Jakhri, which would mean that the water would be already de-silted, lowering the silt costs for the company. While hydro projects have several advantages, being a renewable energy source with nil fuel costs, the primary challenge lies in executing the projects. Delays and associated cost overruns are normal. Even in SJVN's case, the 412 MW Rampur project was to have been commissioned in the Eleventh Plan, but is now expected to suffer a delay of one-and-a- half years, due to the slow progress of the head-race tunnel.

SJVN also has seven other projects that are set to be commissioned between 2016-20. This includes the 775 MW Luhri in Himachal Pradesh; the 900 MW Arun III project in Nepal and the 1,500 MW Tipaimukh project in Manipur (a JV in which SJVN will have a 26 per cent stake).

All projects except Arun III are regulated-tariff-based and have no short-term power opportunities. However, given the seven-eight year gestation period between the initiation of the project and actual implementation, hydro projects may entail a high opportunity capital cost with the probability of overruns.

That more than 60 per cent of the projects are to come up over a decade, may put pressure on SJVN's returns. Another risk the company may face is that of regulated tariffs being reset after five years.

The requirement that the company supply free power (12 per cent of capacity) to the state in which it is setting up the project, is also a drag on returns. While it hasn't signed power purchase agreements for 4,000 MW of the planned projects, given the high demand-supply gap and lower regulated tariffs, the output is likely to find ready takers.

Comfortable on funding

The total funds required for 2,500 MW of additional projects is more than Rs 13,000 crore. But the fact that their commissioning will be spread out over a period of a few years means that it would be easier to fund the projects.

Currently SJVN holds Rs 1,487 crore as cash . This coupled with internal resources should be adequate to take care of funding, at a normative debt:equity of 70:30. It is expected to invest excess of Rs 4,100 crore as part of equity, of which it has already incurred Rs 940 crore.

Financials

Internal accruals are strong. SJVN usually sees higher generation during the May- September period as the snow melts. The sales and net profit grew at an annual rate of 5 per cent and 6.5 per cent respectively during the period 2004-09. For the nine months ended December ‘09, net profits were Rs 775 crore, higher than that for FY-09 (Rs 759 crore), with net margin improving to 51 per cent.

Issue details

The proceeds from this issue for the government is expected to be a maximum of Rs 1054 crore at the price band of Rs 23-26.

via BL

SJVNL IPO

SJVNL IPO

SJVNL IPO Analysis

SJVNL (Satluj Jal Vidyut Nigam) is a hydroelectric power generation company originally established as a joint venture between the government of India and the Himachal Pradesh government to develop and operate the Nathpa Jhakri Power Station (NJHPS). NJHPS is the largest operational hydroelectric power generation facility in India by installed capacity (based on information published by the Central Electricity Authority), with an aggregate generation capacity of 1,500 MW. It is located on the Sutlej River in Himachal Pradesh.

In October 2003, the first 250-MW hydroelectric power generation unit was commissioned at the NJHPS. By May 2004, all six power-generating units at the NJHPS had been commissioned and the NJHPS was fully operational. NJHPS generated 6,014 million units (MU)), 6,449 MU and 6,609 MU of power (gross) in the years ended March 2007 (FY 2007), FY 2008 and FY 2009. The aggregate power generation (gross) by NJHPS amounted to approximately 6,332 MU in the nine months ended December 2009,

SJVNL is required to supply 12% of its annual generation from the NJHPS free of cost to Himachal Pradesh. Out of the remaining 88% of power generated by the NJHPS ( to be reduced by 1% to 87% in the event the company is required to supply power to the local area development fund), 25% is supplied to Himachal Pradesh and the remainder to various states located in the northern region of India pursuant to the 10 long-term power purchase agreements. Of these, two have expired and are in the process of being renewed.

In addition to NJHPS, SJVNL has one project under construction and seven other projects under various stages of implementation. The company is constructing the Rampur project, a 412-MW hydroelectric power generation facility located downstream from the NJHPS. The Rampur project is to be completed and commissioned in 2013. It has also been awarded the rights to develop and operate two hydroelectric projects, with expected aggregate generation capacity of 825 MW by Himachal Pradesh (with a 51% participation interest in each).

SJVNL has entered into memoranda of understanding with the Uttarakhand government for three hydroelectric projects, with aggregate generation capacity of 363 MW. The company has agreed to participate in a joint venture with NHPC and the Manipur government for the development and operation of a 1,500-MW hydroelectric power project in the state. It has diversified to target hydroelectric power projects available outside India, and has been awarded the rights to build-own-operate-and-transfer (BOOT) a 900-MW hydroelectric power project in the Sankhuwasabha district of Nepal, through participating in a competitive tender held by the Nepalese government.

The expected capacity addition from all these projects is 4,000 MW (412 MW from the Rampur project and 3,588 MW from the other seven projects).

SJVNL has agreed to take a minority interest in a joint venture to develop a transmission line in India. This will be part of a transmission line expected to connect Dhalkewar in Nepal to Muzaffarpur in India. The company will expand to providing technical advisory and consultancy services.

SJVNL has lined up an initial public offer (IPO) of Rs 41.50 crore at a price band of Rs 23 to Rs 26. The IPO is opening on 29 April 2010 and closing on 3 May 2010. This is an offer for sale of the government of India's equity shares, representing 10.03% of the paid-up capital of the company. Accordingly, it will not receive any proceeds from the offer. All the proceeds, less offer expenses, will be received by the selling shareholder. The company is offering 5% discount to employees and retail investors.

Strengths

* Has historically been able to achieve high levels of operational efficiencies, reflected in the high average capacity indices for the NJHPS. Under the previous tariff regulations, which were effective during this period, was entitled to certain incentive payments based on its capacity index levels, as determined by the Northern Regional Power Committee (NRPC). Under the new performance-based tariff regime, will be entitled to these incentive payments only if monthly plant availability factor exceeds a pre-determined normative annual plant availability factor. For NJHPS, this is 82%. According to data published by the NRPC, the annual plant availability factor (calculated as the average of monthly plant availability factors in the period) for NJHPS was 92.4%, 96.7% and 96.1% in FY 2007, FY 2008 and FY 2009, respectively, exceeding the normative annual plant availability factor of 85% applicable to NJHPS in those years.

* Has experience in the development, execution and management of mega-hydroelectric projects through the development and operation of the 1,500-MW NJHPS, the largest hydroelectric power generation facility in India by generation capacity, located in the geo-technically sensitive Himalayan region.

* Has an established track record of operational excellence. Since the commissioning of NJHPS, it has consistently met or exceeded government-set performance targets for its operations. Has been upgraded to a Schedule A public sector undertaking and designated as a mini-ratna category-I public sector undertaking in recognition of its efforts.

Weaknesses

* Development of hydroelectric power projects typically requires a longer period of time compared with other power projects such as thermal power projects. Further, development of hydroelectric power projects may be subject to unexpected complexities and delays. There are a number of factors such as delays in the land acquisition process and associated resettlement and rehabilitation issues, geological, hydrological and climatic conditions that may cause delay or cost overruns. Hence, timely execution of the project is the key.

* There have been instances in the past when state governments, or the government of India, decided to transfer the rights to construct and operate hydroelectric power projects, originally awarded to certain parties, to other competing power developers.

* Required to supply 12% of its annual generation from NJHPS free of cost to Himachal Pradesh.

Valuation

Sales income increased 9%, gross generation 6% and PAT 37% in the nine months ended December 2009 over the nine months ended December 2008. However, due to seasonality in business, figures cannot be annualised. Sales (net) stood at Rs 1490.78 crore and PAT at Rs 759.32 crore in FY 2009. On post-IPO equity of Rs 4136.63 crore, the EPS for FY 2009 works out to Rs 1.8. The P/E is 12.5-14.2 times at the offer price band of Rs 23-Rs 26. In comparison, NHPC's consolidated EPS for FY 2009 stood at Re 1 and P/E 30 times at the current market price. The Price/Book Value (P/BV) of SJVNL is 1.4 – 1.6 times, while that of NHPC is 1.6 times.

SJVNL IPO likely to hit the market on 29 April 2010

Govt to divest its stake through the IPO

State-run hydro power generator Satluj Jal Vidyut Nigam's (SJVNL) initial public offering (IPO) to raise about Rs 1200 crore is likely to open on 29 April 2010, reports citing the company's chairman & managing director H K Sharma said. The IPO will close on 2 May 2010, reports added.

The company will reportedly file the draft red herring prospectus (DRHP) for the IPO in the forthcoming week.

The Cabinet Committee on Economic Affairs (CCEA) on 8 April 2010 approved a proposal to increase the equity stake of the Himachal Pradesh government in SJVNL by 0.5%. The state now owns 25.5% equity stake in SJVNL, while the balance is held by the Centre.

Earlier in October 2009, SJVNL had received approval from the Cabinet for 10% disinvestment of the government's stake in the company.