JSW Energy

JSW Energy is entering the capital market on 7th December,2009 with a public issue of Rs. 2,700 crores, price band for which has been fixed at Rs. 100 to Rs. 115 per share. As a gesture, for the retail shareholders, a discount of Rs. 5 shall be offered on the price discovered.

The company is a part of JSW Group headed by Sajjan Jindal, which is in turn a part of the O.P. Jindal Group. The company hopes to emerge as an integrated player in energy sector with presence in power trading, power generation, transmission project, mining operations as also manufacturing of capital equipments like Steam Turbines, Generators in JV with Toshiba of Japan.

The company has 3,650 MW of power generation projects under implementation, mainly at Ratnagiri and Barmer, of which, 995 MW are already operational, while 2,145 MW will be operational by October 2010, in phases, at an interval of every 2 1/2 months. The company also has 7,740 MW of power generation projects under development, for which, preliminary work of land purchase, statutory clearances, feedstock back up, are all being tied up. The total cost of project for 3,650 MW, with transmission and mining projects, are estimated to cost Rs. 17,015 crores, of which ,Rs. 12,210 crores will come from debt and Rs. 4,805 crores from equity contribution.

The interesting part of the company is that, it is already a profit making with sizeable presence in the sector. For 6 months ending September 09, the total income of the company was at Rs. 875 crores with PAT of Rs. 267 crores. Net worth of the company, as at 30-09-09 was at Rs. 1,747 crores, which has been largely used to create the existing capacity of 995 MW. The company has been having investments in 70 lakh shares of JSW Steel, market price of which is over Rs. 700 crores, with its book value at Rs. 200 crores, as at 30-09-09. Also, the profits of the company in H2 of FY10 will be much higher and better, as 730 MW of capacity has become operational between July to September 09. Also, due to likely completion of 2,145 MW by October 10, which is most likely, considering the present status of the projects and execution capability of the promoters, the company hopes to mobilize good part of  equity component of 7,740 MW from internal accruals. This gets reinforced as the company had earned a PAT of Rs. 1,577 crores in the last 4 1/2 years, mainly from power trading and tiny power generating capacity of 260 MW.

Looking to the aggression and execution capability, which has been exhibited by the group in JSW Steel, as also, the present progress of the power projects of the company, it has good prospects of growing faster than its peers in the energy sector, as an integrated player. Also, even if the company is able to just add 3,650 MW further capacity, without any equity dilution over next 5 years, which is most likely to happen, will make the financials of the company even  more strong and its balance sheet quite healthy.

Even now, the financials of the company are better placed with its peers. Adani Power, presently has an EV of Rs. 7.20 crores/MW with total capacity to become operational by March 12. However, the company  has an EV of close to Rs. 7.20 crores/MW by netting off investments and other related power business, as also considering cash flow from early  commencement  of 2,145 MW by October,10.

Considering all these, issue looks good even at the upper band of Rs. 115 per share. It is likely that this issue will not disappoint, as happened with earlier 3 energy IPOs, of Adani Power, NHPC and Indiabulls Power. As such O.P. Jindal Group has remained investors friendly and have rewarded the investors well, over last 25 years.

One can apply in the issue even at the upper band of Rs. 115 for listing as well as investment gains.