Apr 10, 2012, 04.45 PM IST | Source: Moneycontrol.com

Buy Swan Energy; target of Rs 390: Firstcall Research

Firstcall Research is bullish on Swan Energy and has recommended buy rating on the stock with a target of Rs 390 in its April 03, 2012 research report.

Firstcall Research is bullish on Swan Energy and has recommended buy rating on the stock with a target of Rs 390 in its April 03, 2012 research report.

Swan Energy Ltd (SEL) has emerged as one of the largest shareholder in GSPC Pipavav Power Company (GPPC) with around 49% stake, with deal expected to near Rs. 381 Cr. According to the agreement Gujarat State Petroleum Corporation Ltd (GSPC), Gujarat Power Corporation Ltd (GPCL) & SEL shall be the shareholders with 34%, 17% & 49% holding respectively. In turn GPPC together with its other shareholders have agreed to assign 70% of the CERs (carbon emission receipts) that will be generated from GPPC's upcoming Pipavav project to SEL for a period of 10 years.

The project will be eligible for generating CER (Carbon Credits) upon its operations for the first 10 years, as per approved methodology AM0029 of United Nations Framework Convention on Climate Change (UNFCCC). The project has received the Host country approval & as per the AM0029 methodology of the UNFCC, it has been estimated that the GPPC project can generate around 1.2 mn CERs per year. This could result in reduced Green House Emissions & will help SEL to fetch cash flows of approximately INR 7-8bn from carbon credits alone in a period of ten years after the project is operational. The company is very close to commissioning of its first phase of 350 MW of the 700 MW Greenfield gas based power project in Gujarat and SEL expects to generate carbon credit income from the project in the current fiscal year. Entry into FSRU and high margin port business with margin in the range of 65%- 70% would provide stability of revenues and fuel growth in profitability.

We expect the EPS to rise five-fold from Rs 4.97 in FY12E to Rs 24.34 in FY13E. Accelerated earnings growth in FY13 would lead to significant re-rating of the stock as it appears to be trading at very attractive valuations of 4.89x FY13E earnings of Rs 24.34. On the basis of EV/Sales, the stock trades at 5.75 x for FY12E and 1.03 x for FY13E. On the basis of EV/EBITDA, the stock trades at 11.16 x for FY12E and 2.56 x for FY13E. Price to Book Value of the stock is expected to be at 5.33 x and 2.55 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend a strong BUY in this particular scrip with a target price of Rs 390 for medium term to long term investment, says Firstcall Research report.  

Public holding more than 90% in Indian cos

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