JSW Energy IPO opens; should you subscribe?

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JSW Energy IPO opens; should you subscribe?

The initial public offering (IPO) of JSW Energy, a part of Sajjan Jindal-led JSW Group, has opened for subscription. The issue is of Rs 2,700 crore. The price band is between Rs 100 and Rs 115 per equity share and the issue will close on December 9, 2009.

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While comparing with other power utilities, JSWE (post issue) looks fairly priced both in terms of price/book (P/B) as well as market cap/MW basis. However, JSWE is having clear revenue visibility at least from the 995-MW operational capacity. Also, another 2,280MW capacity coming up within 18 months would provide further boost to its near future revenue stream. We believe, although listing gains may not be huge looking at reasonably priced offer price, the expected commissioning of power plants within two years provides JSWE a better revenue visibility vis-à-vis its peers.

Angel Broking

At the lower price band, the IPO is available at 2.8x and 2.3x FY2011E and FY2012E P/BV, respectively. JSWEL will have a market capitalisation of Rs 16,407 crore, compared to current market capitalisation of Rs 172,371 crore and Rs 21,848 crore of NTPC and Adani Power (APL), respectively. JSWEL's EV/MW works out to Rs 6.7 crore, while NTPC commands EV/MW valuation of Rs 5.4 crore with its proven track record in execution as well as operation of power plants. We have valued all the upcoming projects of the company individually and have arrived at a Fair Value of Rs 107/share, excluding all other initiatives in mining, equipment manufacturing and other projects totaling 7,740MW projects under implementation, as these businesses are at nascent stages. We believe that the IPO is fairly priced and keep a Neutral view on it."

Hem Securities

"The company is bringing the issue at price band of Rs 100-115 per share with a discount of Rs 5 to retail investor. However the valuations of the company still looks stiff even after taking into consideration the discount facility available to retailers as the P/E at the above mentioned band will be between 30.03-34.54 at post issue eps of Rs 3.33( Basis PAT annualized for 6 months ending Sept'09). Though looking after projects of the company which are presently working at various stages the long term prospect of the company looks good but at the present level due to high pricing as compare to its various listed peers we recommend the investor to avoid the issue.

About the issue

It intends to utilise the issue proceeds for partially financing construction and development of the Identified Projects aggregating to 2,790 MW in capacity & 400 KV transmission project and mining venture (at cost of Rs 2,142.53 crore) and repayment of corporate debt (Rs 470 crore).

For the year ended March 31, 2009, the company has reported profit after tax of Rs 578.09 crore on total income of Rs 1,593.98 crore. For the half year ended September 2009, it has posted profit after tax of Rs 294.62 crore on total income of Rs 926.28 crore.

Incorporated in 1994, JSW Energy is a part of the JSW Group, headed by Mr. Sajjan Jindal, which is in turn a part of the O.P. Jindal Group. JSW Energy Ltd. is an established energy company with 860 megawatts, or MW, of operational generating capacity and 2,790 MW of generating capacity in the construction or implementation phase, 135 MW of which has been commissioned.

The book running lead managers to the Issue are JM Financial Consultants Private Limited, Kotak Mahindra Capital Company Limited, ICICI Securities Limited, IDFC-SSKI Limited, J P Morgan India Private Limited, SBI Capital Markets Limited, Morgan Stanley India Company Private Limited and IDBI Capital Market Serviced Limited.