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Jaiprakash Power Ventures Ltd------------------------------------------------ Maintain NEUTRAL
1Q12 results below estimates; clarity on coal supplies and equity issuance is the key
JPVL’s 1Q12 recurring PAT at Rs696 mn grew 43.5% YoY, mainly
led by the commissioning of the 0.5GW Karcham Wangtoo project.
However, profit was 38% below our estimates, mainly led by lowerthan-
expected merchant tariff of Rs3.5/kWh earned by the Karcham
Wangtoo project versus our estimate of Rs4.5/kwh and marginal
disappointment from lower incentives at the Baspa-II and
Vishnuprayag projects and higher interest expenses.
● JPVL plans to sell 0.6GW from the Karcham project, on a long-term
basis, through PTC from April 2012, based on the CERC’s cost-plus-
RoE model. MoU for this has already been entered with PTC.
Meanwhile, the project would sell power on a merchant basis.
● JPVL plans to implement 5.1GW linkage/captive coal projects. Given
rising coal deficits and forest clearance issues with one of its captive
blocks, visibility on fuel supplies will be key in the future.
● We cut our earnings by 5% during FY13, as we tweak our estimates
for the Karcham project but cut our target price by 34%, as we factor
in the risk of 25% equity issuance to maintain gearing at a
sustainable level of about 4x. Maintain NEUTRAL.
1Q12 profits 38% below our estimates
JPVL’s 1Q12 standalone recurring profit at Rs696 mn was up 43.5% YoY.
Growth was mostly driven by the commissioning of 0.5GW of its
Karcham Wangtoo project (total capacity 1GW) during the quarter (the
merger of Karcham Wangtoo is now effective). However, profits were
about 38% below our estimates, mainly led by lower-than-expected
merchant tariff earned by Karcham Wangtoo project (earned blended
merchant tariff/ UI rate of Rs3.5/kwh versus our estimate of Rs4.5/kwh.
Our estimate of merchant tariff was based on the average bilateral
merchant tariff during 1Q12. Besides, incentives from Baspa-II and
Vishnuprayag projects were also marginally below our estimates; while
interest expenses on debt taken to finance equity investments of
subsidiaries were about 5% ahead of our estimates.
Karcham plans to sell 0.6GW power on long-term basis
The company plans to sell 0.6GW (rest could be contracted or sold on
merchant basis) power from its Karcham Wangtoo project on a long-term
basis through PTC from April 2012, based on CERC’s cost-plus-RoE
business model. As per the company, it has already entered into a MoU
with PTC for this contract. In the meanwhile, the company plans to sell its
output on a merchant basis.
Clarity on fuel supply for upcoming coal projects is key
JPVL is currently implementing 0.5GW Bina-I, 1.32GW Karchana-I and
1.98GW Bara-I projects based on linkage coal and 1.32GW Nigrie
project based on captive coal. Given the rising domestic coal deficit and
one of the two captive blocks for Nigrie block under the ‘no-go zone’, we
believe clarity on fuel supply for these projects is the key. We have
currently assumed that 45% of coal needs for linkage coal projects would
be met through e-auction/ imported coal and have optimistically assumed
the captive mine issue to be resolved soon.
Cut earnings and price target; maintain NEUTRAL.
JPVL has a strong pipeline of coal and hydro projects under execution.
However, one of the key concerns in its ability to execute these projects
is its high gearing. JPVL had announced its plans to raise US$500 mn,
but this has now been delayed. We have currently assumed a debtfunded
balance sheet for the company, but that stretches the gearing to
unsustainable levels (over 4x by FY12). We thus factor in a risk of 25%
equity issuance (required to keep gearing at 4x till FY14). We also lower
our estimates for the Karcham Wangtoo project. Overall, we cut our
earnings for FY13 by 5% and target price by 34% to Rs42/share. We
maintain our NEUTRAL rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jaiprakash Power Ventures Ltd------------------------------------------------ Maintain NEUTRAL
1Q12 results below estimates; clarity on coal supplies and equity issuance is the key
JPVL’s 1Q12 recurring PAT at Rs696 mn grew 43.5% YoY, mainly
led by the commissioning of the 0.5GW Karcham Wangtoo project.
However, profit was 38% below our estimates, mainly led by lowerthan-
expected merchant tariff of Rs3.5/kWh earned by the Karcham
Wangtoo project versus our estimate of Rs4.5/kwh and marginal
disappointment from lower incentives at the Baspa-II and
Vishnuprayag projects and higher interest expenses.
● JPVL plans to sell 0.6GW from the Karcham project, on a long-term
basis, through PTC from April 2012, based on the CERC’s cost-plus-
RoE model. MoU for this has already been entered with PTC.
Meanwhile, the project would sell power on a merchant basis.
● JPVL plans to implement 5.1GW linkage/captive coal projects. Given
rising coal deficits and forest clearance issues with one of its captive
blocks, visibility on fuel supplies will be key in the future.
● We cut our earnings by 5% during FY13, as we tweak our estimates
for the Karcham project but cut our target price by 34%, as we factor
in the risk of 25% equity issuance to maintain gearing at a
sustainable level of about 4x. Maintain NEUTRAL.
1Q12 profits 38% below our estimates
JPVL’s 1Q12 standalone recurring profit at Rs696 mn was up 43.5% YoY.
Growth was mostly driven by the commissioning of 0.5GW of its
Karcham Wangtoo project (total capacity 1GW) during the quarter (the
merger of Karcham Wangtoo is now effective). However, profits were
about 38% below our estimates, mainly led by lower-than-expected
merchant tariff earned by Karcham Wangtoo project (earned blended
merchant tariff/ UI rate of Rs3.5/kwh versus our estimate of Rs4.5/kwh.
Our estimate of merchant tariff was based on the average bilateral
merchant tariff during 1Q12. Besides, incentives from Baspa-II and
Vishnuprayag projects were also marginally below our estimates; while
interest expenses on debt taken to finance equity investments of
subsidiaries were about 5% ahead of our estimates.
Karcham plans to sell 0.6GW power on long-term basis
The company plans to sell 0.6GW (rest could be contracted or sold on
merchant basis) power from its Karcham Wangtoo project on a long-term
basis through PTC from April 2012, based on CERC’s cost-plus-RoE
business model. As per the company, it has already entered into a MoU
with PTC for this contract. In the meanwhile, the company plans to sell its
output on a merchant basis.
Clarity on fuel supply for upcoming coal projects is key
JPVL is currently implementing 0.5GW Bina-I, 1.32GW Karchana-I and
1.98GW Bara-I projects based on linkage coal and 1.32GW Nigrie
project based on captive coal. Given the rising domestic coal deficit and
one of the two captive blocks for Nigrie block under the ‘no-go zone’, we
believe clarity on fuel supply for these projects is the key. We have
currently assumed that 45% of coal needs for linkage coal projects would
be met through e-auction/ imported coal and have optimistically assumed
the captive mine issue to be resolved soon.
Cut earnings and price target; maintain NEUTRAL.
JPVL has a strong pipeline of coal and hydro projects under execution.
However, one of the key concerns in its ability to execute these projects
is its high gearing. JPVL had announced its plans to raise US$500 mn,
but this has now been delayed. We have currently assumed a debtfunded
balance sheet for the company, but that stretches the gearing to
unsustainable levels (over 4x by FY12). We thus factor in a risk of 25%
equity issuance (required to keep gearing at 4x till FY14). We also lower
our estimates for the Karcham Wangtoo project. Overall, we cut our
earnings for FY13 by 5% and target price by 34% to Rs42/share. We
maintain our NEUTRAL rating on the stock.
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