Satluj Ja Vidyut Nigam - SJVNL Recos

[chetan]

We have a SUBSCRIBE recommendation on the IPO of http://www.dalalstreet.biz/ipo/2010/04/subscribe-to-satluj-jal-vidyut-nigam-sjvnl/

Other Brokerage Recommendations will follow here.

[chetan]

Edelweiss has a SUBSCRIBE recommendation,

The IPO has been priced at INR 23-26, implying 1.4–1.6x trailing P/BV. Based on ~19% RoE on project equity, cash balance of ~INR 15 bn and assuming 12% cost of equity due to lower risks associated with a regulated utility business, we arrive at a value of INR 22/share. Considering the potential upsides from - 1) under development projects, 2) the marginal premium associated with green power and related carbon credit benefits and 3) higher relative valuations of peer set, we recommend investors to ‘SUBSCRIBE’ at the lower end of the price band.

[chetan]

Unicon Wealth Research has following recommendation,

At upper price band of INR 26, the stock is priced at 10.4x its EPS of INR 2.5 (9MFY10 annualised), while on P/BV basis, stock is discounted at 1.6x at upper price band. The stock is cheaper as compared to its peers on both P/BV basis and P/E basis. The company has a very good track record of high operational efficiency, backing of central government and a stable earnings model. Further looking at the tremendous growth prospects in the hydro power generation sector and company’s growth plans along with its experience of handling such projects, we recommend subscribing to the issue for long term value creation.

[chetan]

Indiainfoline / IIFL has a Subscribe Recommendation with the following note,

The IPO of Satluj Jal Vidyut Nigam Ltd., a Schedule-A Mini Ratna Category-I PSU, opens today. Through the issue, priced at Rs23-26/share, the government will divest 10% stake in the company. SJVN currently has 1,500MW of operational capacity. It plans to expand its installed capacity by 3.7x to 5,500MW over the next decade. However there is clarity on only one project, 412MW Rampur project, which is scheduled to commission by 2013. Steady cash flow generation should allow the company to fund its equity contribution towards the capex. Although no capacity is being added over the next two years (hence muted earnings growth) key triggers for FY11 earnings are 1) migration to the new CERC norms, 2) incentive income and 3) higher interest income – on account of high cash generation. Also, the company has superior RoE as compared to its listed peer, NHPC and offers 3% dividend yield. This coupled with the offer being priced at 1.2x (at the lower band) FY11E book, makes the iss e attractive. Recommend Subscribe.

[chetan]

EMKAY has SUBSCRIBE recommendation on the IPO of SJVNL

The valuations at Rs26/share work out to 1.4xFY12E Book Value. This is in line with NHPC’s current valuations. However, the reported ROE of SJVNL at 12-13% is much better than that of NHPC at 7-8%. We have derived the fair value of SJVNL using SoTP, based on P/BV multiple. The FY12E Book Value is expected to be Rs75bn. Of this, we have valued (1) operational project equity of Rs 41bn at 2.1x, (2) Rampur project equity of Rs6bn at 1.6x and (3) balance net worth in cash and debt repayment of Rs28bn at 1.0x. Consequently, we have arrived at a value of Rs125bn or Rs30/Share for the company. Thus, at Rs26/share, the issue price has an upside of 17%. Subscribe.

[chetan]

Mehta Group / MSearch Analyst Prashant Tapse has Subscribe recommendation

We believe that issue is well priced between Rs 23 – 26. On the valuation parse SJVNL is available at discount to its listed hydro power space. At the book value of Rs 14.79 as on March 2009, the stock trades at 1.55x at lower band and 1.75x on the upper band. The discount is been justified as earlier disinvestment plan which were in market for to offer to sale did not perform well as expected. So, in SJVNL IPO Government has left significant upsides on table to the investor to gain the national asset into the portfolio. We believe companies execution strength in earlier project will be the key element to look forward for better delivery in upcoming power plants. Hydro projects come with inherited risks like (geological, hydrological etc) & require a long gestation period which can be a concern for it scheduled execution program. Where as the operating cost of its projects is considerably lesser than that of the conventional thermal power stations like which SJVNL has. Hence, we are positive on its growth prospects owing to which we are ‘Positive’ on the IPO proceeds and recommend investors to “Subscribe”

[chetan]

Angel Broking has the SUBSCRIBE Recommendation on the IPO of SJVNL,

SJVN is a joint venture between the Government of India and the state government of Himachal Pradesh, formed to develop and operate the 1,500MW Nathpa Jhakri Hydro Power Station (NJHPS). NJHPS is currently the largest operational hydroelectric power (HEP) generation facility in India based on installed capacity. SJVN is also currently constructing a 412MW plant at a cost of Rs2,047cr at Rampur in Himachal Pradesh, and is located downstream of the NJHPS. The company also has seven projects of 3,588MW under development. All projects except for the Tipaimukh project are 'Run of the River' projects. The projects under implementation also include a 900MW project in Nepal. We have arrived at a fair value of Rs30 for the stock and recommend a Subscribe to the IPO

[sunil]

Prabhudas Liladhar in its Report says,

SJVN is entering into the capital market with a proven track record in terms of project execution, thus, making it a relatively long-term safe bet. At the lower end of the band, SJVN is valued at 1.4xFY10E, 1.3xFY11E and 1.2xFY12E post-issue book value, which is at par with NHPC’s current valuations. Though our NAV plus LTSSG fair value comes at Rs27, on account of stable cash flows and room for growth, we expect fair response to the IPO and thus, recommend ‘Subscribe at lower end of the price band’.

[sunil]

HDFC Securities Views on the IPO of SJVN Limited,

SJVNL’s business profile is stable marked by firm offtake arrangements for its operational power projects and cost plus basis of tariff determination ensures minimum return on equity. The issue derives strength from the sovereign ownership, experienced management team, satisfactory corporate governance practices, consistent growth in revenues and profitability since commencement and comfortable solvency profile.  SJVNL’s overall gearing is comfortable as has improved over the periods. In line with the improvement in gearing levels interest costs have also been declining.

The issue seems reasonable priced when compared to the private sector peers. However when compared to NHPC, another large PSU in similar space, the issue is not cheap from a P/BV basis, while being cheap from a P/E basis. Retail investors with a long-term perspective can subscribe to the issue (preferably at the lower band) as retailers have an added incentive of 5% discount to the finally determined price.

Subscribe at Lower End Gimmick is Back @ HDFC Securities

[sunil]

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.

[sunil]

Anand Rathi's Views on the Public Issue,

Based on the running projects and the pipeline of projects; plus consistent financial performance and peer group comon, IPO is attractively priced and thus we suggest SUBSCRIBE rating.

[sunil]

Bonanza Research has the following Recommendation,

SJVN Limited is operating the largest hydroelectric power generation facility in India, NJHPS. It has already been awarded quite a few projects from various Governments. The company has also ventured in Nepal for construction of power station. It has entered into a JV for the development of transmission line. In addition, the company also intend to expand into providing technical advisory and consultancy services. In India, the power industry has historically been characterised by energy shortages, with demand for electricity far exceeding the supply; with a clear indication of growth prospects in the sector. At Rs. 26 a share (the upper end of price band), SJVN is valued at 14.1x to P/E on FY2009; which is at a discount to its public sector peer, NHPC which trades at 30.9x and JP Power which trades at 25.2x. Since this is a Government company with good management and steady business model, long term investors looking for steady growth may subscribe to the issue. In addition, this issue also offers 5% discounts to the retail investors.