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Jaiprakash Power Ventures Ltd
Initiation
Neutral
JAPR.BO, JPVL IN
Potential Energy
• Initiate coverage with Neutral; Mar-12 PT of Rs44. JPVL is India’s
largest private hydropower generator; 76.25% is held by flagship Jaiprakash
Associates. It has an operating hydro capacity of 700MW, with 1000MW
due for commissioning over the next 4 months. Currently ~5.1GW of
domestic coal-based capacity is under construction and ~6.9GW is under
development. We expect JPVL to ramp up capacity ~10x to 6.82GW by
Mar-15 resulting in a PAT CAGR of ~80% over FY11-15E.
• The stock has underperformed and is now at 1.2x FY13E P/B, among the
cheapest in the IPP space, due to (a) sector-wide constraints on linkage coal
and poor visibility on captive mine development, which weakened outlook
for PLF, (b) higher interest burden and leverage, as partial equity
requirement of under-construction projects was funded with corporate level
debt, (c) potential dilution to earnings from announced fundraising plans
(we estimate an equity funding gap of ~Rs30bn) and (d) ~20% exposure in
PPAs to falling merchant prices. Although these factors are largely “in
the price” and the stock appears to have found support, we expect these
overhangs to limit near-term upside and the stock to deliver marketneutral
returns, at least until funding issues are fully addressed.
• Modest risk-adjusted returns with potential variance to earnings. Case-
II bids for 3.3GW projects in UP appear aggressive and are est. to yield
<11% return on invested equity over the first 5 years. Our consolidated RoE
estimates are 13-16% through FY16, and on that basis the stock appears
reasonably valued at 9.4x FY13E P/E and 1.2x FY13E P/B. Clarity on
1000MW Karcham Wangtoo PPA is a key variable to the earnings outlook
– a 10% lower project cost approval would reduce FY12E PAT by ~14%.
• Our SOP based Mar-12 PT of Rs44 includes- (a) Rs54 for business cash
flows – Rs11 for operations and Rs43 for projects under development; (b) a
Rs10 debit to account for corporate level net-debt and the net-NPV of equity
funding gap (adj. for sale of treasury shares). A return of risk appetite for
IPPs is a potential +ive trigger and would help remove the funding gap
discount. Improvement in coal visibility is also SOP accretive – 10% higher
PLF (from ~75% base case) would result in Rs10 upside to our PT.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jaiprakash Power Ventures Ltd
Initiation
Neutral
JAPR.BO, JPVL IN
Potential Energy
• Initiate coverage with Neutral; Mar-12 PT of Rs44. JPVL is India’s
largest private hydropower generator; 76.25% is held by flagship Jaiprakash
Associates. It has an operating hydro capacity of 700MW, with 1000MW
due for commissioning over the next 4 months. Currently ~5.1GW of
domestic coal-based capacity is under construction and ~6.9GW is under
development. We expect JPVL to ramp up capacity ~10x to 6.82GW by
Mar-15 resulting in a PAT CAGR of ~80% over FY11-15E.
• The stock has underperformed and is now at 1.2x FY13E P/B, among the
cheapest in the IPP space, due to (a) sector-wide constraints on linkage coal
and poor visibility on captive mine development, which weakened outlook
for PLF, (b) higher interest burden and leverage, as partial equity
requirement of under-construction projects was funded with corporate level
debt, (c) potential dilution to earnings from announced fundraising plans
(we estimate an equity funding gap of ~Rs30bn) and (d) ~20% exposure in
PPAs to falling merchant prices. Although these factors are largely “in
the price” and the stock appears to have found support, we expect these
overhangs to limit near-term upside and the stock to deliver marketneutral
returns, at least until funding issues are fully addressed.
• Modest risk-adjusted returns with potential variance to earnings. Case-
II bids for 3.3GW projects in UP appear aggressive and are est. to yield
<11% return on invested equity over the first 5 years. Our consolidated RoE
estimates are 13-16% through FY16, and on that basis the stock appears
reasonably valued at 9.4x FY13E P/E and 1.2x FY13E P/B. Clarity on
1000MW Karcham Wangtoo PPA is a key variable to the earnings outlook
– a 10% lower project cost approval would reduce FY12E PAT by ~14%.
• Our SOP based Mar-12 PT of Rs44 includes- (a) Rs54 for business cash
flows – Rs11 for operations and Rs43 for projects under development; (b) a
Rs10 debit to account for corporate level net-debt and the net-NPV of equity
funding gap (adj. for sale of treasury shares). A return of risk appetite for
IPPs is a potential +ive trigger and would help remove the funding gap
discount. Improvement in coal visibility is also SOP accretive – 10% higher
PLF (from ~75% base case) would result in Rs10 upside to our PT.
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