JSW Energy (Update) : Good but not a great deal. Maintain NEUTRAL :: HDFC Sec, link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Good but not a great deal
We believe that JSW Energy’s acquisition of two
hydro assets of JPVL is a positive long term step as
it diversifies company’s asset portfolio. Post
acquisition the company will have 30% hydro
capacity (currently zero) and merchant proportion
will come down to 32% vs. 46% now.
However, our analysis suggests that it doesn’t lead
to meaningful value accretion in the near term. We
note that TAQA had backed out of a deal to acquire
three hydro assets of JPVL (Vishnuprayag, 300MW
along with Baspa and Karcham) at similar
valuation. In the absence of funding details, we do
not build the impact of acquisition into our
estimates. Retain Neutral with a TP of Rs 76/sh.
Key details
 JSW Energy has acquired Jaiprakash Power Ventures’
(JPVL) two operational hydro assets – Karcham
Wangtoo (1,091MW) and Baspa II (300MW) for an EV
of Rs 97bn (equity consideration of Rs 39bn and Rs
58bn of debt). Project level debt is Rs 43bn while Rs
15bn is debt raised by JPVL through cash flow
securitization of the two projects.
 Baspa II is a fully regulated plant selling its entire
output to Himachal Pradesh. The plant was
commissioned in FY04 and its tariff is governed by the
PPA signed between the plant and HPSEB.
 Karcham Wangtoo has long term PPA for 704MW
with PTC. The final tariff is yet to be approved by
CERC. 176MW capacity is on merchant basis. Till FY14
the plant was running as 100% merchant plant.
 The two plants will be hived off into a subsidiary -
HPBC which will be acquired by JSW Energy. The
company is still keen on acquiring Bina (500MW
operational coal based plant) from JPVL and the due
diligence is going on.
Impact on valuation
 We believe that with a strong balance sheet (cash of
Rs 8bn) and annuity nature of these assets JSW
Energy is in a position to debt finance the acquisition.
 Our preliminary analysis, assuming 100% debt
financing suggests that an addition of Rs 4/sh to our
TP of Rs 76/sh is possible in the best case. Hence
value accretion is not meaningful and will depend
primarily on financing arrangements.
 With this acquisition, the company’s ability to bid in
upcoming coal block auctions also gets reduced as
net D/E will go up to 2.2x from 1.3x in FY14. Retain
Neutral with SOP based Mar-16 TP of Rs 76/sh.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009920