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JSW Energy Review – Expensive + Bad Management

December 4, 2009

The years 2006 and 2007 belonged to the Real Estate companies. 2009 belongs to Power companies, but thankfully, due to powerless listing, Retail Investors have stayed away and let the so called anchor investors / FIIs commit their funds to these projects which are valued as though they are the High Growth Stocks, Electricity and that too in India 🙂

Promoters Background:They are the same Jindals who have defaulted / were on the verge of bankruptcy in their half hearted badly managed and implemented Jindal Vijayanagr Steel project, where we have already lost ton of in 90s money.

About JSW Energy:JSW Energy is nothing but a power plant that caters to the power requirements of Jindal Vijayanagar Steel plant and you know they can twist and turn the prices manipulate as they want. We give a ZERO Rating to the management and its practices on a scale of 5.

Show me one analyst on the STREET who can support the management for what they have done to Jindal Vjayanagar Shareholders. None. Investment Bankers want business from the company and their analysts will Polish the management and not paint the TRUE STORY 🙂

Painting Powerful Dreams the Anil Ambani Way:JSWEL has tied up fuel for 3,380 MW out of the 3,650 MW of operational and under construction projects 1,080 MW will run on domestic lignite, 2,060 MW on imported coal, and 240 MW is hydro capacity. All the purchase contracts for imported coal are linked to the RB Index, exposing the company to fuel price risk as the power tariff may not be aligned to the coal index.

Our only question to you is – Does this issue command such a PREMIUM when ZERO Rating Promoters have subscribed to the issue at less than Rs 10 after adjusting dilution, why should I PAY Rs 100 for the issue ?

JSW Energy IPO – Details:
Pre-issue equity 1372.73 mn shares
Post-issue equity 1618.2 mn shares
Retail Portion of the IPO – 73.6 mn shares

The company unlike Reliance Power is profit making but by virtue of selling power to group company, which is a shady practice in our view. Extremely optimistically, JSW Energy may earn a PAT of Rs 600 cr and on fully diluted equity basis the EPS will be Rs 3.72 thus valuing the company 30 times its FY10 earnings. Expensive!!!

Peer Comparison:
Comparing the Market Cap INR CR / MW in 2012 – JSW Energy’s ratio at 5.89 is higher than that of market leader Tata Power which is at 3.75 thus making the issue look VERY VERY expensive. Also, installed power capacity for JSW will be 1/3rd of Tata Power.

Retail investors are cautioned to stay away from the marketing gimmick of Rs 5 discount in JSW Energy IPO. AVOID the Issue.

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