Satluj Jal Vidyut Nigam Ltd. (SJVN) IPO Analysis, Updates, Company Profile, Risk and Concern Outlook
Satluj Jal Vidyut Nigam Ltd.
SJVN Limited is coming with a 100% book building, initial public offering (IPO) of 415,000,000 shares to raise about Rs 108 crore. The equity shares of Rs 10 each are being offered in a price band of Rs 23-26 per equity share.
At least 60% of the issue will be allocated to Qualified Institutional Buyers (QIB). Further, upto 10% would be available for non-institutional bidders and remaining 30% for the retail investors.
Satluj Jal Vidyut Nigam Ltd. (SJVN) IPO issue will open on April 29, 2010 and will close on May 03, 2010.
The shares will be listed on BSE and NSE.
The face value of the share is Rs 10 and is priced 2.3 times of its face value on the lower side and 2.6 times on the higher side. Minimum order quantity for bidding has been fixed at 250 shares and thereafter in multiples of 250 shares.
Book running lead managers to the issue are JM Financial Consultants, IDFC Capital, IDBI Capital Market Services and SBI Capital Markets. Company Secretary and Compliance Officer for the issue is P.S.R. Murthy.
Profile of the Satluj Jal Vidyut Nigam Ltd. (SJVN) :
SJVN incorporated on May 24, 1988 under the Indian Companies Act, 1956, as amended (the Companies Act) as a private limited company under the name of Nathpa Jhakri Power Corporation Private Limited with the Registrar of Companies, Punjab, Himachal Pradesh and Chandigarh. The company is into hydroelectric power generation originally established as a joint venture between the government and the state government of Himachal Pradesh to develop and operate the Nathpa Jhakri Hydro Power Station (NJHPS). Based on the information published by the CEA, the NJHPS is currently the largest operation providing hydroelectric power generation facility in India based on installed capacity, with an aggregate generation capacity of 1,500 MW and is located on the Sutlej River in the state of Himachal Pradesh.
It has also diversified the operations to target hydroelectric power projects available outside India, and has been awarded the rights to construct and operate on a build, own, operate and transfer (BOOT) basis, a 900 MW hydroelectric power project to be located in the Sankhuwasabha district of Nepal, through participating in a competitive tender held by the Nepalese government. Through these projects, it expects to increase its total installed power generation capacity by approximately 3,588 MW.
Satluj Jal Vidyut Nigam Ltd. (SJVN) IPO Grading
CARE has assigned IPO grade 4/5 to the initial public issue of the company, indicating above average fundamentals of the issue.
Proceeds is being used for
The purpose of the Offer is to achieve the benefits of listing on the Stock Exchanges and to carry out the transfer of 415,000,000 Equity Shares by the Selling Shareholder. Listing of the Equity Shares will create liquidity in the Equity Shares through the creation of a public market for the Equity Shares in India.
Industry Overview
The power industry plays a vital role in the economic development of any country. One of the key factors behind any growing country is the energy requirement and supply in that country. As energy plays a very important role in industrial production and common man’s life, it has become extremely important to boost the growth in energy segment for the growth of the country.
The power industry in India has historically been characterized by energy shortages, with demand for electricity far exceeding the supply. The continued growth of the Indian economy has accelerated the need for further investments in the power sector. The Government has identified the power sector as a focus sector, in order to sustain industrial growth. Based on a report published by the CEA, for FY 2009, demand for electricity exceeded supply by 11.0% (as compared to 9.9% in the preceding year). The total energy shortage during this period was 85,303 MU. Similarly, India’s peak demand deficit during this period was 12.0% or 13,124 MW.
As India’s economy continues to grow, it is expected that India’s energy consumption will grow as well. A key risk to the continued growth of the Indian economy is inadequate power infrastructure. Growth in power infrastructure investment in India may be constrained without further improvements. In order to sustain a GDP growth rate of 8-9%, India would require additional capacity of about 66-79 GW by 2012, 152-183 GW by 2017 and 271-334 GW by 2022 based on normative powers.
Satluj Jal Vidyut Nigam Ltd. (SJVN) IPO Pros and strengths:
Experienced and established track record of operational excellence- The company has experience in the development, execution and management of mega-hydroelectric projects through development and operation of the 1,500 MW NJHPS, which is the largest hydroelectric power generation facility in India, based on generation capacity, and is located in the geo-technically sensitive Himalayan region. Since the commissioning of the NJHPS, the company has consistently met or exceeded Government-set performance targets for their operations. Their established performance track record and experience in executing, operating and managing the NJHPS gives them a competitive advantage in developing large hydroelectric power projects, both in India and abroad.
Guaranteed return on capital under prevailing tariff regime – Based on prevailing tariff regulations, the electricity tariffs are calculated by the CERC based on the principle that if energy generation at a particular project meets certain predetermined performance targets which have been specified for that project, the project operator is entitled to revenues from electricity generation which are sufficient to cover certain identified fixed costs and incorporates a guaranteed return on equity on a portion of the capital investment for that project, termed as annual fixed charges. Under Government policies and prevailing regulations, up to 30% of aggregate project costs in relation to a project is eligible for the guaranteed rate of return on equity.
Stable revenue stream through long-term agreements – The company has entered into ten power purchase agreements with state utilities in the Northern region of India, two of which are in the process of being renewed, under which all of the power generated by the NJHPS (except for 12% of annual generation which is allocated to the state of Himachal Pradesh free-of charge and an additional 1% of annual generation from projects located in the state of Himachal Pradesh which is allocated to a state-established local development fund) is sold to state electricity boards.
Strong cash position to support project development and operations – The company’s strong historical financial performance and steady cash flows from its existing operations at the NJHPS are sufficient to fund, through the internal resources, the equity contribution portion for the existing pipeline of projects, and support the working capital requirements, while at the same time servicing and repaying their existing debt on a timely and reliable basis, and maintaining a healthy level of cash on its balance sheet. Hence, their strong cash position and cash flow generation capabilities from the NJHPS are attributable to a number of sustainable long-term factors, including stable customer demand, stable cost structure and an experienced and capable management team.
Satluj Jal Vidyut Nigam Ltd. (SJVN) IPO Risks and concerns:
Dependency on climatic conditions- The company is engaged in generation of hydropower and the amount of power generated by hydroelectric generation facilities is dependent on available water flow, and fluctuates due to variations in water flow which in turn depends on factors such as rainfall, snowfall, snowmelt or other seasonal and climatic conditions, as well as the carrying capacity of the river. Hence, adverse hydrological conditions, whether seasonal or for an extended period of time, that result in inadequate or inconsistent water flow may render hydroelectric generation facilities incapable of generating energy in accordance with current estimates, which may adversely affect the business, prospects, and increase the period of cost recovery associated with such projects.
Dependency on contractors – The company is dependent on various contractors for the construction and development of its projects and for the supply of materials and equipment, and any failure on their part to perform their obligations may adversely affect its operations. They rely on third party contractors for the construction and development of its projects. Accordingly, the timing and quality of construction of its projects depend on the availability and skill of the contractors which they engage. They also rely on third party suppliers to provide them with raw materials used in the construction of its projects, such as cement and steel.
Dependency on single project – All of the company’s revenues are generated from the NJHPS located in the state of Himachal Pradesh on the Sutlej River, which is one of the principal tributaries of the Indus River in the southwest Himalayas. All of the power generated and supplied by the company is presently generated by this project. Consequently, any interruption in the operations of the NJHPS would potentially have a greater negative impact on the company than if the operations were spread among a larger number of facilities in India or in the rest of the world. Any other factors which would result in any disruptions at the NJHPS, may have a significant and adverse impact on the business, operations, cashflows, profitability, financial condition and results of operations.
Vulnerable to disturbances in Himachal Pradesh – Due to the actual and expected concentration of its power generation capacity in the state of Himachal Pradesh, any disruptions in the state of Himachal Pradesh, including disruptions due to seasonal weather conditions, political and social unrest and regional economic and labour conditions, or changes to the regulatory environment within Himachal Pradesh, would have a disproportionate effect on the business. Similarly, any environmental, seasonal or other factors which affect the Sutlej River and its tributaries, including excessive rainfall and silt would result in a disproportionate effect on the business and operations.
Satluj Jal Vidyut Nigam Ltd. (SJVN) IPO Outlook:
SJVN, is into hydroelectric power generation and was originally established to develop and operate the Nathpa Jhakri Hydro Power Station (NJHPS) which is currently the largest operation providing hydroelectric power generation facility in India based on installed capacity, with an aggregate generation capacity of 1,500 MW. The company has also diversified its operations to target hydroelectric power projects available outside India, and has been awarded the rights to construct and operate on a build, own, operate and transfer (BOOT) basis, a 900 MW hydroelectric power project to be located in the Sankhuwasabha district of Nepal. Through these projects, it expects to increase its total installed power generation capacity by approximately 3,588 MW. The company is having experience in the development, execution and management of mega-hydroelectric projects also it is having stable revenue stream through 10 long-term agreements with different state utilities.
On the concern side, all of the company’s revenues are generated from the NJHPS located in the state of Himachal Pradesh. Consequently, any interruption in the operations of the NJHPS due to climatic conditions or any other reason would potentially have a greater negative impact on the company. The company will be facing the risk of availability of water flow, and fluctuations due to variations in water flow and adverse hydrological conditions may render hydroelectric generation facilities incapable of generating energy in accordance with current estimates. Apart from this the company will continue to face opposition from special interest groups, as well as local communities located in the vicinity of any new or existing projects.
The shares of the company are being offered in a price band of Rs 23-26, retail investors and SJVNL employees will be offered a five per cent discount on the issue price. At the upper price band of Rs 26 a share, the enterprise value of SJVNL will be at Rs 10,755 crore. Post-issue, the Centre’s holding in the company will come down to 64.5 per cent from present 74.5 per cent. For the period of nine months ended of December 2009, it has reported net profit of Rs 775.37 crore on total income of Rs 1,510 crore. The issue will be the first from the government stable in this financial year; though the issue has been competitively priced but for the last some time there has been unwillingness in the mindset of retail investors to go for government owned companies which was clearly evident with the tepid response to the NMDC offer as well as a preceding sale in power producer NTPC. The company has stable revenue stream and strong cash position to support project development and operations. Having a huge cash reserve of Rs 1,500 crore also the company is having a low debt to equity ratio at 0.25:1 giving an edge over its peers. On all these grounds we will recommend a ‘Buy’ for the issue.
Source : Live Mint
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Category: IPO
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