Jaiprakash Power, Debt reduction may get delayed… :: ICICI Securities, PDF link

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Debt reduction may get delayed…
• Generation increased 37.6% YoY to 434.6 crore units in Q2FY15
driven by increased generation at Bina, re-commissioning of
Vishnuprayag and commencement of 660 MW unit of Nigrie STPP
• Sales increased 23.9% YoY to | 1,200 crore, above I-direct estimate
of | 1,071 crore due to higher than anticipated generation (~434.6
crore unit vs. expectation of 422.0 crore unit) and better realisation
• Fuel cost increased 84.3% YoY due to increased generation from
thermal based plants. This was, however, partially offset by 38.4%
YoY fall in G&A expenses. Interest cost was up 33.2% YoY while
depreciation declined 7.4% YoY due to a change in methodology for
calculation of depreciation as mentioned in Companies Act 2013
• Consequently, PAT increased 19% YoY to | 299.8 crore (above our
estimate of | 246.0 crore)
Increased debt from capacity addition impacts earnings
With the initial presence across hydro segment, capacity addition
remained tepid over FY04-08 with addition of only 700 MW (Baspa – 300
MW & Vishnuprayag – 400 MW). However, with the commissioning of
Karcham Wangtoo – 1000 MW, the company’s capacity more than
doubled to 1,700 MW in FY11. This impacted JPVL’s debt position (D/E of
2.3x in FY11 vs. 0.8x in FY09). Furthermore, the promoter also securitised
assets across existing plants with banks to fund its upcoming projects.
JPVL’s debt position was further impacted (D/E at 3.3x) due to
commissioning of its 500 MW Bina thermal plant in FY13. Currently, with
an installed capacity of 2,200 MW, the company’s debt has swelled to
~| 25,000 crore as its Bina plant continued to make losses even after a
year and a half of operation due to lower fuel supply and back down by
SEBs. Consequently, JPVL’s consolidated PAT declined 86.9% YoY to
| 47 crore despite 16.9% growth in topline to | 2,874 crore in FY14.
Signs MoU with JSW Energy to sell stake in Baspa, Bina & Karcham
To reduce its mounting debt and ease pressure on cash flow, JPVL has
decided to sell its entire stake in Baspa II (300 MW), Bina (500 MW) and
Karcham Wangtoo (1,091 MW) to JSW Energy and, accordingly, signed a
MoU. JPVL’s past effort to sell these plants to TAQA and Reliance Power
failed due to valuation issues. However, the management remains
confident on sealing the deal with JSW Energy in a short period. The
proceeds from the sale will be used to pay off JPVL’s debt of ~| 8000
crore. Consequently, JPVL’s standalone debt is likely to decline to
| 11,000 crore while consolidated debt is expected to decline to
~| 17,500 crore. Furthermore, JPVL will also bid in the upcoming coal
auction to regain its Amelia and Dongri blocks.
Target price revised downward as lack of clarity persists on debt reduction
While the asset sale is likely to bring down the debt burden by ~| 8,000
crore and ease its D/E ratio to 2.6x, execution of the same may take
longer than expected. JPVL’s past two attempts to sell its assets failed
over valuation issues. Thus, we factor in a cautious approach this time.
Furthermore, with the cancellation of coal blocks, the company’s Nigrie
project will have to seek fresh linkage via bidding process, which would
further strain JPVL’s balance sheet. Also, the Bara project is now likely to
get commercialised in FY16 vs. FY15 earlier. Factoring in the same, we
have revised our estimates downward. Accordingly, we now revise
JPVL’s target price to | 15.9 (0.65x FY16E P/B) vs. | 25.6 earlier. We
maintain our HOLD recommendation on the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_JaiprakashPower_Q2FY15.pdf