Tuesday, November 24, 2009

IPO ANALYSIS: JSW ENERGY LIMITED – POWER PACKED - APPLY

Jindal group needs no introduction in capital markets. The group has business interest in the steel, power, cement, aluminum, software, power trading and infrastructure sectors.

The power company from the JSW group is planning to raise Rs 2700 cr through IPO, in the price band of Rs 100 - 115 per share, having face value of Rs.10 per share. The issue will open on 07-12-09 and closes on 09-12-09.

JM Financial Consultants Pvt Ltd, Kotak Mahindra Capital Ltd., ICICI Securities Ltd., IDFC-SSKI Ltd., JP Morgan India Ltd., SBI Capital Markets Ltd., Morgan Stanley India Ltd. and IDBI Capital market Services ltd are the book running lead managers to the issue.

JSW Energy limited, is a part of the JSW Group, headed by Mr. Sajjan Jindal.The company currently owns and operates thermal power plants in Karnataka with an aggregate capacity of 860 MW. It also provides operation & maintenance services for power plants of group companies and project management services for the power plants being set up by the group. JSWEL is currently in the process of enhancing its power generation capacity by 2,790 MW. It is also setting up a transmission line network and developing lignite mines through joint ventures.

OBJECTS OF THE ISSUE

The funds raised are intended to be used for setting up power plants. Repayment of high cost corporate debts and for general corporate purposes.

The cost of the projects is estimated at Rs.14,048 crore and is being funded in a debt to equity ratio of 2.45:1 i.e. long-term debt of Rs.9,979.50 crore and equity of Rs.4,068.50 crore. The company has already tied up the total debt component while, funds aggregating Rs.5, 982 crore were deployed in the various projects as on June 30, 2009. State Bank of India and ICICI Banks have appraised and funded the projects.


VALUATION

The company had a CAGR in excess of 30%, in revenue generation, in the last three years. Consistently profit making company. Professional and experienced management. Known for good corporate governance. Strong financials. Power plant are located at diverge geographical locations. The issue has been graded by rating agency CARE as Grade 4, indicating above-average fundamentals. The company’s RoNW is at 18% as on 31-03-09. At Rs 100 -115, the issue is very attractively priced. Retail investors are offered a discount of Rs 5/.

OPPORTUNITIES

On the successful commissioning of the projects, JSWEL would have benefit of the prevailing high merchant tariff for short term. Given the significant power supply deficit in the country and government recognizing the power sector as a key infrastructure sector to be developed to sustain Indian economic growth, prospects for
growth is favorable for companies in the power sector.

One of the established energy company. One of the early entrants in the power trading business. Currently most of the revenue is derived from power generation. The company has the potential to become an integrated power company in the Indian power sector with presence across the value chain.

The low per capita consumption of electric power in India compared to the world average presents a significant potential for sustainable growth in the demand for electric power in India. There is a very big gap between demand and supply, demand being higher. The company is in the right business at the right time. Investors are advised to apply for the issue for both short term and long term appreciation.

VERY ATTRACTIVELY PRICED APPLY.

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