Motilal Oswal is bullish on Jaiprakash Power Ventures and has recommended buy rating on the stock with a target of Rs 53 in its January 16, 2013 research report.
“Jaiprakash Power Ventures Ltd (JPVL)'s operating capacity is set to increase from 2GW currently to 5.5GW by FY15E, as 3.5GW of under-construction projects are commissioned in a phased manner (by mid-FY15E). Pertinently, in an uncertain macro environment, JPVL's project portfolio scores well on PPA/FSA matrix, with almost no risk to earnings due to fuel supply for the entire 5.5GW projects and PPA structure entailing reasonable returns. Proven track record in executing and operating hydro power project is a key long term positive, in our view.”
“JPVL's growth has been funded largely through internal accruals/securitization of existing project cashflows, corporate debt and parent contribution (transferred economic interest in Karcham Wangtoo to JPVL through share swap). This has led to skewed capital structure, with FY12 DER of 3.2x, which looks further steep at 4.2x, after eliminating capital reserve of INR13b (25% of net worth). Equity funding requirement over FY13E-15E stands at ~INR24b for projects under construction, while corporate debt (debentures and FCCB) repayment till FY15 is INR44b. JPVL can monetise treasury stock of INR20b (market value INR13b), in addition to further fund-raising approval of INR35b. Strong cash flows of operating assets and relatively better project portfolio would help meet funding requirements.”
“We expect JPVL to report an earning CAGR of 48% over FY12-15E, driven by project commissioning. However, reported earnings for the company are helped by absence of interest on corporate debt (NCD/FCCBs redeemable at premium). Going forward, we assume monetization of treasury stock (at value of INR18.5b - at our TP) in FY14E, and partial funding met through rollover of corporate debt or securitization (interest accounted in P&L). However, a delay in fund-raising could (manageable till FY13E) lead to lower upfront earnings from Nigrie and Bara projects (2.5GW of the total 3.6GW under construction).”
“We value JPVL on a SOTP basis and arrive at power business valuations of INR66/sh (P/BV of 2.2x of equity invested as in Dec 2012), less debt of INR11/sh. Our TP of INR53/sh takes into account Karcham Wangtoo (KW) project on merchant basis and 50% of Nigrie project on open basis (tariff assumed at ~INR3.50/unit). If KW is not assumed on merchant basis, our target price would reduce by ~INR11/sh. JPVL trades at 13.2x FY14E PER and P/BV of 1.4x (RoE of 11%). However, the PAT CAGR over FY14E-16E would be 77%, as asset commissioning is back-ended, which would also lead to higher return ratios,” says Motilal Oswal research report.
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