SJVN Ltd

SJVN Ltd. is entering the capital market on 29^th April 10, with a public issue of 41.50 crore equity shares of Rs.10 each, in the band of Rs.23 to Rs.26 per share. A discount of 5% will be given to the Retail category and this is an offer for sale by the Government of India.

The company is presently operating a 1,500 MW hydroelectric power project at the Nathpa Jhakri Hudro Power Station (NJHPS) situated on river Sutlej, in the state of Himachal Pradesh. The company is currently constructing a 412 MW hydroelectric power generation facility, known as Rampur Project, located downstream from NJHPS and will be commissioned in 2013. The company intends to finance this project with internal accruals only and hence, equity of the company will remain same at Rs.4,137 crores.

Though the company has many other hydro power projects in pipeline, like 825 MW in Himachal Pradesh with 51% interest, 363 MW in Uttarakhand, 1,500 MW in Manipur in JV with NHPC and 900 MW on BOOT basis in Nepal, but the same are not considered, as they are either at an early and elementary stage or no financial closure of them have taken place.

The company can well be compared with NHPC, which has 5,175 MW hydropower generation capacity, with 13 projects, located in 5 states. Though capacity of NHPC is about 3.50 times of SJVN Ltd., but the topline and bottomline of NHPC is not commensurate with its capacity, due to power plants being in operation for the last over 15-18 years,  with low power tariff. For FY09, NHPC had a total income of Rs.4,050 crores with PAT at Rs.1,245 crores, giving an EPS of Re.1.10, on equity base of Rs.11,182 crores, with book value at Rs.16.45, as at 31^st March 09. As against this, SJVN had total income of Rs.1,635 crores with PAT at Rs.759 crores, resulting in an EPS of Rs.1.85, with book value at Rs.16.45 as at 31^st March 09.

Despite better financials of SJVN, price band has been kept reasonable at Rs.23-Rs.26 per share, and on top of it, a 5% discount is being offered to retail category. It seems that the government has realised its mistake of aggressive pricing of NHPC. Even if we take the upper band of Rs.26, share is issued at a PBV of 1.40 times, based on expected book value of Rs.18.50, as on 31^st March 10. Issue price of Rs. 26 per share is giving as PE multiple of 10 times on expected EPS of Rs.2.60 for FY10. Enterprise value of the company is likely to be at Rs.13,000 crores, which translates into EV per MW of around Rs.6.80 crores,  on expanded capacity of 1,912 MW or at Rs.8.70 crores, on present capacity of 1,500 MW, which looks quite reasonable.

Considering all this, issue is recommended for investment even at the upper price band of Rs.26 per share, as it can list at around Rs.30. Effective cost per share, to retail investor will be Rs.24.70 per share, at the upper band.