Review of Satluj Jal Vidyut Nigam – SJVNL – Subscribe
April 29, 2010
SJVN, a hydro electric utility, is tapping the equity market with the Government of India being a 75% stake holder and Government of Himachal Pradesh will continue to own ~25%. The current offer is Offer for Sale by the Government, that means the company will not get any Money.
Company has experience in the development, execution and management of mega-hydroelectric projects in difficult terrains, which will help the company in developing future projects. SJVN commissioned India’s largest hydro project, the 1,500 MW Naphtha Jhakri Power Station (NJHPS), in 2004 by investing ~INR 80 bn (1:1 debt/equity). This is a CERC regulated project and, as per norms, is likely to earn ~19% on project equity (RoE 15.5% + incentives) on a sustained basis, as per management’s guidance. In addition, 412 MW is under construction entailing capex of INR 20 bn.
The existing regulation has a provision compensating for less than adequate water inflow in a particular year by recovery in subsequent years. Hence, INR 6.5 bn earnings (15.5% RoE) in the NJHP project are certain even with a lag. The company has the lowest maintenance schedule of 10 days among peers and are confident of maintaining this schedule in the future. This leads to high plant availability (over 90%), thereby improving the returns.
he existing cash balance of ~INR 15 bn is likely to be sufficient to fund the entire capex, even after continuing with the 30% dividend payout policy. We have assumed normal operations and accelerated capex schedule for the 3,588 MW.
SJVNL Financials / Fundamentals:
Upper Price Band – Rs 26 / Share
Expected for FY 2009-10 EPS based on results of first 9 Months – RS 2.43 Annualized
P/E at the Upper Price Band – 10.7
P/BV – 1.6
The stock is cheaper as compared to its peers on both P/BV basis and P/E basis.
Fundamentally, very Good Issue to Subscribe. As the Carbon Credit Saga unveils, these Green Companies will have lot of demand and will see a P/E expansion. We recommend investors to Subscribe to the IPO of Satluj Jal Vidyut Nigam – SJVNL