Jaiprakash Power:Good 2Q; execution pick-up : BofA ML

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Jaiprakash Power Ventures Ltd.
Good 2Q; execution pick-up with 7GW under build-out


􀂄 2Q11:Rec PAT +38%YoY on VHEP merger; 7GW ordered; Buy
JPVL (Parent) 2QFY11 Rec PAT Rs870mn grew by 38%YoY (+10% BofAMLe) on
merger of Vishnuprayag HEP and incentive on secondary energy at Baspa II. 2Q
generation at BASPA II +11%YoY while Vishnuprayag by -5% vs Indian hydro +4%
as its plants are powered by snow-fed rivers. Execution has improved as JPVL has
ordered 7GW (58% of our valued capacity) and has already spent Rs98bn ($2.2) till
1HFY11. Catalysts loaded in 4QFY11E: start of generation at 1.2GW Karcham
Wangtoo HEP, start of construction at 1.5GW Lower Siang HEP and equipment
order for 1.3GW Bara Ph 2. We tweak PO to Rs82 (81) to factor-in 25% hike
capacity of Bina project to 1.5GW (1.2GW) earlier. Near-term Q’ly should be weak &
valuations are not cheap due to back-loaded cash flows and debt taken by parent to
fund equity to minimize dilution, our PO is based on DCF of its 12GW capacity.
3x by FY12E and 11x by FY15E; 12GW IPP – 17x by FY19E
We forecast 3x rise in JPVL capacity by FY12E and 11x by FY15E. Execution is
picking-up (see table 2 & 3) – with ordering of Karchana equipment, 58% of capacity
would be under-construction. We have factored in 12GW of the capacity add by
FY19E and are yet to value 2160MW of capacity pending visibility of execution.
Growth Uts. with high profitability… funds in-place till FY12
JPVL is a growth utility with visible scale up of capacity to 12GW by FY19E on a
pipeline of high RoE (20-30%) concessions, even after factoring in a 40% fall in
merchant power tariffs by FY13E. Funding is a risk, but it shouldn’t be difficult given
the high profitability of projects. It raised debt for equity funding till 1HFY12-$200mn
CB, Rs10bn ZCB and Rs26bn securitized receivables. Expect equity issue in FY12.
…and diversified business model + catalysts
We like JPVL’s compelling and diversified model across: fuel mix (hydro 33%:
thermal 67%), regulated vs merchant mix (57: 43) and plant location across north,
central and north east India (60:23:17). A lot of catalysts for the stock in form of new
plant order and start of Karcham HEP are loaded in 4QFY11 as described above.