Rabindra Nath Nayak SBICAP Sec thinks it could mainly be profit booking in Jaiprakash Power Ventures ltd that led the stock price to fall in trade on Monday after it agreed to sell two hydroelectric power plants to TAQA, a consortium led by Abu Dhabi National Energy Co.
It could also be concerns on valuations because the market was expecting the sale price to be two times the price to book value but it came to around 1.5 times the price to book value, says Nayak.
Below is the interview of Rabindra Nath Nayak SBICAP Sec with Ekta Batra and Reema Tendulkar of CNBC-TV18.
Reema: Is it just profit taking which is resulted in this kind of a fall that we have seen in both Jaiprakash Power and Jaiprakash Associates or are there some concerns with respect to the stake sale?
A: It could be because of the concerns on valuations of the sale of their two power plants. The market was expecting two times the price to book value but it comes to around 1.5 times the price book value, so that could be one of the reasons for some sort of disappointment.
Ekta: Can you just tells us what the impact would be or what would be the possible balance sheet now post some amount of debt reduction for JP Power as well as for JP Associates?
A: Although we don’t cover the stock but I can say around Rs 6000-7000 crore will go out from the balance sheet of JP Power
Reema: Now that JP Power has sold two of its key operating assets how much will the EBITDA come down for JP Power as well as for JP Associates and also secondly with respect to the residual business what will be the kind of growth rates that we could expect on revenues as well as on EBITDA?
A: I cannot quantify the impact since we don’t cover this stock. However, I can say the only one plant will be remaining that is Vishnuprayag which is one hydro power plant but that also has some problem due to flood in that particular region. Other plants too are not giving any significant returns in terms of profit to the consolidated entity because all the other plants are thermal power plants. For the other hydro power plants they have not started any sort of work as of now. I cannot quantify the numbers per se in terms of EBITDA but significant decline is expected if they go out of the business completely.
Ekta: Can you just give us a sense of how much the final cash as well as equity infusion will be in the company considering that some portion of the debt was securitised we understand as well?
A: The company has invested around Rs 7000 crore in Karcham Wangtoo - that is the total capital cost; Rs 2500 crore should have been the reserve equity portion for Karcham Wangtoo and Rs 600-700 crore for the Baspa power plant. The debt would be in the range of Rs 6000-7000 crore.
Reema: You indicated that it has just got one Rudraprayag asset which has also run into regulatory hurdles and the others are not giving them any kind of a return so what would be for the balance business the fair value that you think should be assigned?
A: I cannot comment on the valuations but when we had derived a ballpark number earlier it was coming out to be Rs 28 including these two power plants. Now, if you remove these two operating which are very good plants for the company then the valuation will come down. So, I cannot put through any number on the valuation front as of now because we don’t cover the stock.
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