KSK has started commercial generation at 135MW VS Lignite unit—a 74%-owned generation company in Rajasthan (the rest of the stake is owned by 11 captive users). The 135MW unit would almost double KSK’s generation capacity, as its three existing operating unit’s aggregate to 144MW capacity. KSK has spent Rs6.9bn on this project, which is funded through a D:E:pref mix of 75:18:7.
Initially, ~30MW power available for external sales: KSK has contracted its entire power generation to captive users. However, according to the management, deferment of offtake by a large industrial player would enable KSK to sell 25-30MW through shirt-term PPAs. With fuel firmly tied up, such opportunistic external sales should allow the unit to register healthy profits. The rest of the power generated is contracted to captive users, at an average price of ~Rs2.90/unit.
KSK is currently constructing two projects aggregating 583MW: 1) 540MW at Wardha Warora; and 2) 43MW Arasmeta expansion. Commissioning of VS Lignite improves visibility on these under-construction projects. We retain our FY11/FY12 estimates, which build in a 91% CAGR over FY09-12. Trading at 11x FY12ii EPS, KSK is one of the cheapest utilities under our coverage.
KSK is a BUY with a Target Price of Rs 243.
