HSBC Has a SUBSCRIBE RECOMMENDATION on the iPO of SJVNL
SJVNL’s earnings are derived only from one project of NJHPS. Given its dependence on a single project and the next project coming only in FY14, SJVNL offers only marginal earnings growth through operational incentives and upward revision of tariff for NJHPS on new CERC norms (higher 15.5% regulated RoE from 14% earlier). However, SJVNL is a stable company with a good RoE and dividend yield and its IPO seems reasonably priced. SJVNL has a FY09 RoE of
~13% and dividend yield of ~3%. At an annualized 9M FY10 PAT, SJVNL trades at a P/E and P/B of 10.4x and 1.6x respectively at the higher price band of Rs 26. On a cash earnings basis, SJVNL trades at an annualized 9MFY10 P/E of ~7.3x at the higher price band of Rs 26. Also, a discount of 5% per share would be offered to retail investors.
NHPC on the other hand, trades at a P/E and P/BV of ~18x and 1.35x FY12E respectively with a FY12E RoE of ~7.8% and a dividend yield of 1%. Although NHPC offers a CAGR of ~17% over FY09-FY12 (as per Bloomberg estimates), its RoE is lesser than that of SJVNL. We think that the valuation gap between the two is high. We, thus, feel that valuations offer room for listing gains for SJVNL. Also, SJVNL can be categorized as a defensive stock with reasonable returns. We, therefore, recommend a Subscribe on SJVNL’s IPO issue at the higher price band of Rs 26.