Merger of Jaiprakash Power Ventures’ subsidiaries with itself: Edelweiss

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Event: Jaiprakash Power Ventures (JPVL), a power subsidiary of Jaiprakash
Associates (JPA), has announced the merger of two of its unlisted subsidiaries with
itself. The subsidiaries to be merged are Jaypee Karcham Hydro Corp. (JKHC) and
Bina Power Supply Corporation (BPSC). JPVL has also secured the Board approval,
subject to shareholders’ consent, to raise INR 35 bn through various instruments.
Key details of JPVL subsidiaries

• JKHC: One share of JPVL to be issued for every five shares held of JKHC. It is to
be noted here that JPA owns 43.13% of JKHC. JKHC is the holding company for a
1,000 MW hydropower project in Himachal Pradesh. The plant is expected to
commission in March 2011.
BPSC: Two shares of JPVL to be issued for 13 shares held in BPSC. JPVL owns
100% in BPSC. BPSC is the holding company for a 1,500 MW thermal power
plant located in Madhya Pradesh. We expect the phase 1 of the plant (500 MW)
to commission in FY13.
Impact: Post-merger, our estimate of SOTP value for JPVL stands revised at INR 135
bn against INR 117.6 bn pre-merger. Post-merger, value of JPA’s economic interest
in JPVL stands revised at ~INR 106 bn (pre-merger value of INR 89.7 bn). Post
holding company discount of 20% for JPA and adjusting for JPA’s pre-merger holding
of 43.13% in JKHC, we estimate net value depletion of INR 1.2 bn for JPA or INR
0.6/share.
We currently have a ‘BUY’ recommendation on the stock with SOTP NAV of INR
133/share.