Jaiprakash Power :PAT +2.6x on full benefit of Hydro; best is yet to come :: BofA Merrill Lynch

Jaiprakash Power Ventures Ltd.
PAT +2.6x on full benefit of
Hydro; best is yet to come
􀂄 1Q Rec PAT +163% on higher merchant sale & MAT credit; Buy
JP Power 1QFY13 Rec. PAT at Rs1.8bn grew 163%YoY (+24% BofAMLe) led by
a) 343%YoY growth in merchant volume on full benefit of 1.2GW Karcham Hydro
power (KHP) and +24%YoY higher merchant ASP (Rs3.60/kWh) and b) lower tax
on recognition of Rs391mn of MAT credit entitlement. 1Q PAT accounts for 36%
of our FY13E PAT and we think best is yet to come in 2Q. Catalyst for FY13 is full
benefit of KHP and start of 2x250MW Bina plant in 2/3Q and on-time execution of
mines and attached Nigree project. JP Power has UPF BSE power index
11%YTD and Sensex by 15% on stake sale by promoters'. JP Power is our Utility
top-pick as we believe it offers compelling & diversified model across: fuel mix,
regulated vs merchant mix and locations. Risks: Shift to part-PPA vs 100%
merchant at KHP and any cap. on returns from captive coal mine projects.

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Volume +56%; Merchant ASP Rs3.6 = PAT 2.6x
JP's generation at 2.2bn kWh +56%YoY led by 340% growth in generation at
1.2GW KHP on +2x capacity and full utilization. This was partly offset by weak
generation at Baspa II (-23%) and Vishnuprayag HEP (-14%) on lower water
availability which led to 27%YoY fall in regulatory sales (Baspa II -38%YoY and
Vishnuprayag -9%). Average ASP +27%YoY on sale of 1.1bn kWh (+343%YoY)
from KHP @ ASP of Rs3.60/kWh (+24%YoY).
Capacity +26% in FY13 and 3x by FY15; 10GW – 5x by FY20
JP Power offers a diversified model: fuel mix (hydro 43%: thermal 57%), regulated
vs. merchant mix (50:50) and located across north, central and north east
(53:18:21) regions of India. Risks: Hydrology, back-loaded FCF, equity funding
required in FY14-15E, rising exposure to merchant power and delivery of coal linkages
at Bina and Bara projects.


Valuation: Valued 9.7GW; Option value 3.9GW
We factor in 9.7GW of the capacity, of which 6.4GW (66%) shall be
commissioned by FY17E. We are yet to value 3.9GW of the capacity, pending
visibility


Jaiprakash Power Ventures Ltd. (XJSHF)
Our PO of Rs58 for JP Power is based on SOTP valuation. We have valued sum
of the parts based on DCF valuation at CoE of 11.8%-20%. We have valued 89-
100% stake in Hydro power plants at Baspa II at Rs5 per share (CoE 11.8%),
Vishnuprayag at Rs6 per share (CoE 11.8%), Karcham Wangtoo at Rs17 per
share (CoE 15.4%), Lower Siang at Rs7 per share (CoE 18.7%) and Hirong at
Rs1 per share (CoE 20%). We have valued the 100% stake in thermal power
stations at Bina Power at Rs7 per share (CoE 15.5%), Nigrie at Rs19 per share
(CoE 15.4%), Bara Ph-I Rs1 per share (CoE 12.8%) and Bara Ph-II Rs6 per
share (CoE 17.4%). The effective stake for Carbon credits is valued at Rs4 per
share (CoE 16.7%). The 74% stake in JP Power Grid is valued at Rs1 per share
(CoE 12.1%). This sums up to Rs75 per share. After deducting Rs22 per share
for parent debt of FY17E, we arrive pre-Treasury SOTP value of Rs52 per share.
We have valued 344mn treasury stock at Rs47 per share - 20% discount to our
SOTP value additing Rs6/share to SOTP. This sums up to Rs58 per share.
Downside risks: Hydrology, project funding, project execution, commercial selling
arrangement at Karcham Wangtoo, any cap. on returns from captive coal mine
projects, delivery of coal-linkages at Bina & Bara projects and potential narrowing
of demand-supply of power in India leading to fall in power prices in merchant
market.