TARA HEALTH FOODS LIMITED: POOR REPONSE TO IPO. EXTENDS CLOSING DATE, REDUCES PREMIUM

Northern India focused oil and cattle/poultry feed Company's IPO received bids for 2.88lacs shares against the offer of 85lacs shares. The company proposes to issue shares of Rs10 face value in the price band of Rs 180-190. The issue constitutes 33.28% of the fully diluted post issue paid up capital. The issue which opened on 28-04-10 and was supposed to close today. Atherstone Capital Markets Limited-Book Running Lead Manager to the issue has informed the Exchange that the Book Building issue of TARA HEALTH FOODS LIMITED will close on May 05th,2010 instead of the earlier closing day on Apr 30th,2010.Further price band has been revised from Rs 180/- to Rs 190/- per share to Rs 175/- to Rs 185/- per share.

FIRST CHOICE HAS RECOMMENDED TO STAY AWAY FROM THE ISSUE.

IPO NEWS - MANDHANA INDUSTRIES LIMITED - SUBSCRIBED 6.32 TIMES

The Maharastra based textile/garment manufacturer and exporter's IPO was subscribed 6.32 times.The company came out with an IPO of 83, 00,000 shares of Rs 10/- each in the price band of Rs 120-130. The issue opened on 27-04-10 and closed today. Edelweiss Capital Limited and Axis Bank Limited are the BRLM. The issue constitutes 25.06 percent of the fully diluted post issue paid-up capital of the company. The company plans to raise around Rs 100 cr.

FIRST CHOICE HAD RECOMMENDED FOR SUBSCRIPTION TO THE ISSUE.

FORTHCOMING IPO -SHIRDI INDUSTRIES LIMITED

NAME OF THE COMPANY	SHIRDI INDUSTRIES LIMITED
ISSUE SIZE	65,00,000 EQUITY SHARES OF RS 10 EACH AT A PREMIUM
PROMOTERS	RAKESH KUMAR AGARWAL, SARVESH AGARWAL,  MUKESH BANSAL, HARIRAM AGARWAL AND ASIS INDUSTRIES PRIVATE LIMITED
BRLMS	Collins Stewart Inga Private Limited, YES Bank Limited
OBJECTS	a)      To fund  the setting up of manufacturing facilities at Gummidipoondi near Chennai, b)      To  fund  the  capital  expenditure  for  civil  work  and  purchase  of  additional  equipment  at  Pantnagar  unit  in  Uttarakhand .

IPO NEWS - MANDHANA INDUSTRIES GET GOOD RESPONSE

The IPO of Mandhana Industries Limited received good response on the opening day. The company received subscription up to 71% of the total shares offered. FIRST CHOICE HAD STRONGLY RECOMMENDED FOR SUBSCRIPTION TO THE ISSUE.

TARA HEALTH FOODS LIMITED: NOT HEALTHY INVESTMENT – AVOID

Northern India focused oil and cattle/poultry feed Company is entering the capital market with an IPO. The company proposes to issue 1cr equity shares of Rs10 face value in the price band of Rs 180-190. The issue constitutes 33.28% of the fully diluted post issue paid up capital. The issue opens on 28-04-10 and closes on 30-04-10. Atherstone Capital Markets Limited are the sole BRLM.

PROMOTERS:  BALWANT SINGH, .JASWANT SINGH AND KULWANT SINGH.

BUSINESS:

The company is one of the few organized players of the oil and cattle/poultry feed industry.

Presently, Tara Health Foods has a 500 tpd capacity of cattle and poultry feed plant, with a 250-tpd unit at Punjab and another 250-tpd unit at Uttaranchal. The Uttaranchal plant was set up in 2007 to capture the northern market, rationalise logistic cost, to make available unhindered raw materials, and to take up the incentives and concessions offered by the Uttaranchal government. The company has a 250-tpd solvent extraction plant at Malerkotla. This was backward integration for continuous supply of raw materials, i.e., de-oiled cakes, a key ingredient of compounded cattle and poultry feed formulation. It also has a 120-tpd edible oil refining capacity at Malerkotla.

Tara Health Foods sells its products under various brands. Edible oils like rice bran oil, olive oil, and cottonseed oil, and a blend of rice bran oil and olive oil are sold under brands Tara Gold, Tara Lite, Tara Kotton, Zaitoon Tara, Tara Olive, and Tara Unique. For cattle feeds, the company has brands like Tara Feed, Rath Gold, Rath No. 1, Rath Panjiri, Rath Feed and Tara MIN.




OBJECTS OF THE ISSUE:

·        Setting up a new Edible Oil Refining Plant.

·        Expansion of Cattle Feed Plant.

·        Augmenting long-term working capital requirement.

FINANCIALS: RS IN CRORES

	30-06-09	31-03-09
TOTAL INCOME	75.15	198.24
NET PROFIT	9.88	16.99
EPS (RS)	5.14	8.91

POST ISSUE PAID - UP CAPITAL – RS 30.04 cr.

RISKS
1. Company does not have any long-term contracts with the customers, which may adversely affect the results of operations.

 2. Promoters and/or Promoter Group have conflict of interest.

 3. The company faces stiff competition in our business from organized and unorganized players.

 4. The business in which the Company is engaged in not seasonal, however, the availability raw materials are seasonal in nature. Failure to make adequate arrangement arrangement for raw materials ware housing will affect the performance of the company.

5. Rating agency FITCH has assigned grade – 2, indicating below average fundamentals.

Outlook for Demand

The demand outlook for both segments in which the company operates is positive-given the increasing consumption ion of milk in the country, and the recent demonstration in consumer eating habits towards a shift from conventional edible oils to health-focused edible oils. Cattle feed demand depends on the level of farmers’ awareness and the increase in milk yield from using the cattle feed. The company is trying to increase awareness levels by organizing regular seminars in villages. The R&D efforts are also going on simultaneously, to continuously improve the quality of the feed by obtaining regular feedback k from farmers concerning the milk yield. The daily feed requirement also provides much downside support to demand, and makes demand inelastic to a certain extent.

In the edible oil segment, the major challenge is to shift consumers from traditional edible oils - like mustard, groundnut and sunflower - to rice bran and blended oils,which have been proved good for health.

VALUATION AND RECOMMENDATIONS;

At Rs 180-190 price band the valuation is extremely stressed. The annualized EPS for the year FY 10, on the fully diluted post issue capital is Rs 13.20. The asking PE, for a mid-sized company is on the high side. Nothing left for the investors. RISKY PROPOSITION. STAY AWAY FROM THE ISSUE.

IPO ANALYSIS: JAYPEE INFRATECH LIMITED – UPHILL ROAD - AVOID

Jaypee group promoted infrastructure development company is entering the capital market with an IPO. The issue consists of fresh issue of equity shares of Rs 10 face value amounting to Rs 1650.00cr and Offer for sale of 6cr equity shares in the price band of Rs 102-117. The issue opens on 29-04-10 and closes on 04-05-10.

Morgan Stanley India Company, DSP Merrill Lynch Limited, Axis Bank Limited and Enam Securities Private Limited are the BRLMs.

BUSINESS

Jaypee Infratech Limited is an infrastructure development company engaged in the development of the Yamuna Expressway and related real estate projects. The Company, which is part of the Jaypee Group, was incorporated on April 5, 2007 as a special purpose company to implement the Concession. The company holds permission to concession develop, operate and maintain the Yamuna Expressway in the state of Uttar Pradesh, connecting Noida and Agra. The Concession also provides for the right to develop 25 million square metres of land along the Yamuna Expressway at five locations for residential, commercial, amusement, industrial and institutional purposes. The business model consists of earning revenues from traffic and related facilities on the expressway during the 36-year Concession period and development of associated real estate pursuant to the Concession

The company is developing the Yamuna Expressway, which is a 165-kilometre access-controlled six-lane concrete pavement expressway along the Yamuna river, with the potential to be widened to an eight-lane expressway. The expressway will be entirely in the state of Uttar Pradesh. At the end of the Concession period, the expressway will be transferred to the government without any payment under the terms of the Concession Agreement.


FINANCIALS:

For the year 09, the company earned a profit of Rs 266.73cr, as against the loss reported for the year-08. For the half-year 09, the company reported a net profit of Rs 10 lacs on the total income of Rs 27.64cr.

RISKS AND CONCERN

The company’s sole business is development of the Yamuna Expressway Project pursuant to the Concession Agreement. Following the Concession period, which will expire 36 years after the award of the certificate of completion for the Yamuna Expressway, the Yamuna Expressway will be transferred to the government.

Furthermore, pursuant to the Concession Agreement, if construction of the expressway is not completed by April 2013 or within such extended period as may be approved by the YEA, the Concession period may be shorter than 36 years, in which case the aggregate toll revenues would suffer a corresponding reduction.

Expressway faces high market risk given the competition from the existing National Highway 2(NH2),although this is not significant given that ICRA expects that profit from sale of real estate will be the key revenue driver for the company. Out of the five land parcels available to JIL, the land parcels in Noida and Greater Noida have high marketability. So far the company has received a satisfactory response to its real estate launches in Noida, however, achieving similar sales on a sustained basis over the long term can prove to be challenging. This is particularly so given the sizeable developable space that JIL plans to sell (58 million square feet in Noida and 87 million square feet in Greater Noida). In addition, the company faces competition from numerous other players which have sizable real estate development plans in Noida and Greater Noida. Apart from the Noida and Greater Noida land parcels, the Concession Agreement (CA) also provides JIL rights for development of similar land parcels in Mirzapur, Tappal and Agra. The market risks for these land parcels are higher given the low current demand and lack of adequate physical and social infrastructure in these areas. Going forward, timely completion of the expressway and delivery of existing real estate projects would be crucial for sustained real estate sales.


RECOMMENDATIONS - Investors are advised to stay away from the issue, since there may not be any listing gains, considering long gestation period and the risks associated with the project,particularly uncertain revenue generation.

IPO NEWS - JAYPEE INFRATECH LIMITED – PRICE BAND RS 102-107

The above IPO will open on 29-04-10. The company proposes to issue equity shares of Rs 10 each in the price band of Rs 102-117.

AWAIT FOR DETAILED ANALYSIS AND RECOMMENDATIONS.

FORTH COMING IPO - GREEN ORIENT POWER

NAME OF THE COMPANY	GREEN ORIENT POWER LIMITED
ISSUE SIZE	RS 900CR
PROMOTERS	SHRI RAM EPC
BRLM	JM Financial, Goldman Sachs, UBS Securities and Axis Bank.
OBJECTS	To finance the construction and development - biomass projects being undertaken - a.  10 MW power project in Narasingpur, Madhya Pradesh,  b.  10 MW biomass power project in Amritsar    c.  7.5 MW biomass power project in Vellore  d. 10 MW biomass power project in Patiala.
BUSINESS	The company is a leading Indian independent renewable energy-based power generation company focused on Developing, owning and operating a diversified portfolio of renewable energy power plants.

IPO ANALYSIS: MANDHANA INDUSTRIES LIMITED – GROWTH FOCUSED: APPLY

The Maharastra based textile/garment manufacturer and exporter is entering the capital market with an IPO of 83, 00,000 shares of Rs 10/- each in the price band of Rs 120-130. The issue opens on 27-04-10 and closes on 29-04-10. Edelweiss Capital Limited and Axis Bank Limited are the BRLM. The issue constitutes 25.06 percent of the fully diluted post issue paid-up capital of the company. The company plans to raise around Rs 100 cr.

PROMOTERS: Purushottam Mandhana, Biharilal Mandhana, Manish Mandhana, Priyavrat Mandhana and Purushottam Mandhana (HUF).

BUSINESS:

Mandhana Industries Limited (MIL) is a vertically integrated textile and garment manufacturing company having presence across operations ranging from yarn dyeing to garment manufacturing. The operations and facilities enable the company to manufacture a wide variety of value-added fabrics and garments through the integrated operations comprising of dyeing of yarns and fabrics, weaving operations for fabrics, processing solutions for both, fabrics and garments, garment manufacturing, domain expertise in providing sampling and designing for both fabrics and garments.

MIL has positioned itself as a multi-product, multi-fibre and multi-market player ensuring the targeted markets with diverse mix of domestic fabrics and garments as well as the international garment markets. 

OBJECTS OF THE ISSUE

•  Setting up of new garment manufacturing facility at MIDC, Tarapur Maharashtra.
•  Expansion of yarn dyeing and weaving facility at MIDC, Tarapur.
•  Margin Money  for Working Capital; 
• Funds for General Corporate Purpose.

FINANCIALS --RS IN CRORES

	07	08	09
TOTAL INCOME	240.33	406.95	463.25
NET PROFIT	19.43	35.30	36.56
EPS (RS)	9.25	15.89	16.14

 RISKS AND CONCERNS

• Potential conflict of interest with promoters having other companies in the same line of business.
• Some of the independent directors have been issued shares at a discount as compared to other shareholders

• The degree of competition is very high on both, fabrics as well as garments side, with many small and large players. Margin expansion is extremely difficult in an industry with a large number of players. The company will have to continuously innovate producing new designs and focus on improving the operational efficiency through technological improvements in order to maintain margins.    

VALUATION AND RECOMMENDATIONS

MIL has a healthy revenue growth at a CAGR of 47 per cent driven by increased weaving, dyeing and garmenting capacities over the past 3 years. The business model is focused on low volume and high value products, which provide higher margins. At Rs 120-130 price band, the company demands a valuation of less than 10 PE of its FY 09 earnings, on the fully diluted post issue equity.  REASONABLY PRICED. APPLY AT LOWER BAND.

IPO ANALYSIS: TARAPUR TRANSFORMERS LIMITED – POOR FUNDAMENTALS - AVOID.

BilPower company promoted, transformer manufacturer, is entering the capital market with an IPO of 85, 00,000 shares of Rs10/- each in the price band of Rs 65-75. The issue opens on 26-04-10 and closes on 28-04-10. The company intends to mobilize Rs 63.75cr at the upper price band. Comfort Securities Private Limited are the sole BRLM.

BUSINESS:

The company is currently engaged in the areas of manufacturing, rehabilitation, up gradation, and refurbishment of transformers ranging from power & distribution transformer, Rectifier Transformer, Electric Locomotive Transformers among others.

CRISIL GRADING -1/5

The grading for the proposed initial public offer of Tarapur Transformers Ltd, indicates poor fundamentals relatively to other listed securities.

The IPO grade reflects the weak position of Tarapur Transformers in a highly competitive power transformer industry, dominated by large established players. The power transformer segment is expected to show strong growth due to the government’s focus on increasing power generation and on improving distribution efficiency. However, Tarapur Transformers is expected to face challenges in establishing itself successfully in this segment.

Despite having considerable experience in power transformer repairing and distribution transformer manufacturing, the company is inexperienced in manufacturing higher range of power transformers. The execution team required for scaling up of operations is also in the process of being recruited. The grading also considers negative operating cash flows for the last three years due to long working capital cycle brought about by high receivables days. The working capital position is further strained due to delays in payment from State Electricity Boards.

The IPO grading also reflects inadequate corporate governance structure as well. Nik-San Engineering Company (P) Ltd, a promoter group company, operates in a similar line of business as that of Tarapur Transformers. The two companies do not have a formal non-compete agreement, which poses a potential conflict of interest. In addition, Tarapur Transformers sources its key raw material (transformer core) from its parent company Bilpower. However, no formal arms-length pricing agreement for this purpose is in place. Further, the extent of engagement of independent directors falls below the expected level.

Tarapur Transformers repairs, upgrades and manufactures power and distribution transformers. It is a 71 per cent subsidiary of Bilpower, which manufactures laminations and motor stampings. Tarapur Transformers is a registered vendor for various SEBs across the country, and is registered with many private companies for supply and repair of power transformers. The company has three operating plants.

Through the IPO proceeds, the company proposes to fund the expansion of its Pali unit and plans to undertake an acquisition to diversify into an allied segment.

POOR FINANCIALS - RS IN CRORES

	07	08	09
TOTAL INCOME	3.02	10.68	24.01
NET PROFIT	0.04	1.57	2.15
EPS (RS)	0.05	1.50	2.15

FORTHCOMING IPO - CLARIS LIFE SCIENCES

NAME OF THE COMPANY	CLARIS LIFE SCIENCES LIMITED
ISSUE SIZE	RS 300CR
PROMOTERS	Mr. Arjun S. Handa and Sarjan Financial Private Limited
PRICE BAND	NOT YET DECIDED
BRLM	ENAM,EDELWEISS CAPITAL, JM FINANCIAL ICICI SECURITIES
OBJECTS	Setting up of a new plant comprising a small volume parenterals line, a PVC bag line, a non-PVC bag line and a fat emulsion line.   Construction of a facility for research and development.   Prepayment of an identified term loan.
RECOMMENDATIONS	AWAIT FOR DETAILED ANALYSIS AND RECOMMENDATIONS

IPO ANALYSIS: NITESH ESTATES LIMITED: DEBT RIDDEN-WEAK FOUNDATION -AVOID

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The merchant bankers, inspite of many IPOs getting tepid response for the issues, particularly from the retail investors (due to unreasonable premium) and IPOs quoting discount to the issue price after listing, have not learnt any lessons. Out of the twelve recently listed IPOs, eight are quoting below the offer price.  How do retail investors get confidence to invest in new issues?

OFFER DETAILS:

The Bengaluru based real estate company is planning to raise around Rs 405 cr  through initial public offer of equity shares of Rs 10/- each.

ICICI Securities Limited, Enam Securities Private Limited and Kotak Mahindra Capital Company limited are the BRLM s. The issue opens on 22-04-10 and closes on 27-04-10.

BUSINESS:

The Company is in the business of real estate development and is primarily engaged in the development of residential projects in Bengaluru. Nitesh is also developing a residential and an office project in Kochi. The company is in the process of diversifying into the development of shopping-malls  and  are  expanding  the  geographic  reach  to Chennai  and Goa. The residential projects include multi-unit apartment buildings targeted at high-income and middle-income customers. Nitesh is currently  developing  the  first  hospitality  project,  the  first  ‘Ritz-Carlton’  brand  hotel, on Residency Road, in the central business district of Bengaluru.

 

The Company since its incorporation in 2004 has completed three residential projects totaling 0.55 million sq. ft. of Saleable Area. Nitesh undertakes most  of  the  projects  through  the  joint-development model  as  compared  to  acquiring  a freehold or leasehold interest in the land, which reduces the upfront cost of land acquisition and the total project  financing  costs.  This allows the company to deploy the more funds towards development of the projects. 

OBJECTS OF THE ISSUE:

 

a) To acquire joint development rights,

b)  Funding Subsidiaries and the Associate Company, for repayment/prepayment of loans, redemption of debentures.

c)  Repayment of loans 

d) General corporate purposes.

The fund requirement and deployment of the Net Proceeds of the Issue is based on internal management appraisal and estimates. 

FINANCIALS:    (Rs in millions)

	Sep 09	09	08	07
Total income	458.47	868.89	688.73	240.15
Net profit	60.80	27.60	9.86	28.73
EPS	--	0.43	0.17	0.77
RONW	--	5.30	0.90	7.40

 

RISK FACTORS AND CHALLENGES

The joint development model pursed by the company will have negative impact on the bottom line, since the brand equity and reputation of the company is not strong enough to attract potential joint development partners on favorable terms.

The company’s ability to successfully compete in new segments across different geographies is yet to be demonstrated. The company has a limited operational history.

As per CRISIL estimate, the annual additions in units are expected to grow from 70 million units in 2008 to reach 81 million units in 2014. Estimated annual additions in units in rural areas are to grow from 174 million units in 2008 from 198 million units in 2014.

Nitesh’s  business  is  heavily  dependent  on  the  performance  of  the  real  estate  market  in  Bengaluru. Regional slow down or slow down in IT/ITES sectors will have adverse effect on the performamence on the company.

Nitesh had defaulted in loan repayment to the banks and financial institutions. The auditors were unable to comment on related party transactions. The company is heavily indebted and interest out go will put pressure on margins. Nitesh had negative cash flow in the last three years. A major portion of the proceeds of the issue - Rs 136cr is earmarked for repayment of loans.

The Company was irregular in the deposit of income tax, fringe benefits tax and service taxes. The company had inconsistent margin in the last three years.

Out of current and on going projects, only 4% of the land is registered in the name of the company.

VALUATION:

CRISIL IPO grade 2/5reflects the company’s entry into the highly competitive mid-income housing segment, and development of retail, commercial and hospitality projects, in which the company has a limited track record. These plans also present significant funding and execution risk. In the past, the management’s strategies have not been very successful, with NEL registering very low margins. The company also defaulted on its debt and interest payments in 2008-09, which was subsequently restructured/repaid.

                           Comparison with the peers

Name of the company	Face value	EPS	PE	RONW	NAV
Ansal properties	5	4.6	18.7	4.8	98.5
Brigade Enterprise	10	7.2	25.7	8.6	88.6
Purvankara Projects	5	6.2	27.0	30.6	61.4
Sobha Developers	10	11.1	32.9	10.3	169.7
Nitesh Estates	10	0.41	--	5.3	8.15

RECOMMENDATIONS

For a company whose EPS is in paise, the price band of Rs 54-56 is on the high side.
AVOID SUBSCRIPTION.

IPO ANALYSIS: TALWALKARS BETTER VALUE FITNESS LIMITED – PREMIUM TOO FAT - BETTER AVOID.

The Mumbai based fitness company, which has pan India presence, is entering the capital markets.  The company proposes to issue 60, 50,000 equity shares of Rs 10 face value in the price band of Rs 123-128. The issue will open on 21-04-10 and close 0n 23-04-10. IIFL are the sole BRLM.

PROMOTERS -  Madhukar Vishnu Talwalkar,  Prashant Sudhakar Talwalkar,  Vinayak Ratnakar Gawande,  Girish Madhukar Talwalkar, Harsha Ramdas Bhatkal and  Anant Ratnakar Gawande.

BUSINESS

Talwalkars are one of the largest fitness chain in India, offering  a  diverse  suite  of  services  including  gyms,  spas,  aerobics  and  health  counseling  under  the  brand  “Talwalkars”. “Talwalkars” has pioneered the concept of gyms in India and today is a recognized name in the health and fitness industry.   Presently, they operate 51 health clubs in 24 cities, in 11 states, serving over 55,000 members.

OBJECTS OF THE ISSUE

• For setting up of additional health clubs.
• To repay certain unsecured loans.

FINANCIALS           RS IN CRORES

                           

	08	09	SEP 09
TOTAL INCOME	38.49	59.42	35.88
NET PROFIT	4.51	5.68	3.19
EPS	23.23	28.91	16.00
RONW (%)	39	33	8.34

RISKS AND CONCERN

1. Company operates in a highly competitive market and face stiff competition from other players operating both in organized and un-organized sectors. Some foreign players have also entered the Indian market.

2. Disputed brand - There exists a Group which owns and operates gyms under the same or similar name and which can claim the history of the brand. Further, any deficiency in the quality of services, equipments, training, etc. provided by these gyms may adversely affect the brand image.

3. CARE has awarded grade – 3 for the IPO indicating average fundamentals.

4. Average cost of acquisition of shares by promoters is around Rs 2.50.

5. A  slowdown  in  economic  growth  in  India  and  other  unfavorable  changes  in  political  and  economic  factors may adversely affect the business and results of operations.

VALUATION AD RECOMMENDATIONS

For the half-year ended Sept -09 the net profit earned is Rs 3.19cr. This translates into an EPS of Rs 2.60 on the fully diluted post issue capital of Rs 24.11cr. At Rs 128, the company discounts FY 10 earnings by almost 50 times. The valuation is very much stressed. AVOID SUBSCRIPTION.

Promoters holding - post issue will be 59.39%.

NEGATIVE CLOSING FOR GOENKA DIAMONDS

Goenka Diamond and Jewels, which listed today,closed at Rs 123.10 against the issue price of Rs 135.00 The company had issued 1,00,000,00 equity shares of Rs 10 each, in the lower price band. CARE has awarded grade -2 for the IPO. SBI Capital Markets Limited were the sole BRLM.

FIRST CHOICE HAD RECOMMENDED TO STAY AWAY FROM THE ISSUE BECAUSE OF HIGH PREMIUM. THE ANALYSIS AND RECOMMENDATIONS OF FIRST CHOICE ONCE AGAIN PROVED VERY CORRECT.

GOENKA DIAMOND LISTING TODAY

Goenka Diamond and Jewels, which public on 23-03-10 will lists its shares today. The company has issued 1,00,000,00 equity shares of Rs 10 each, in the lower price band of Rs 135. CARE has awarded grade -2 for the IPO. SBI Capital Markets Limited were the sole BRLM.

IPO ANALYSIS: SJVNL –REASONABLY PRICED -APPLY

The state-run hydropower generator Satluj Jal Vidyut Nigam Limited (SJVNL) plans to raise about Rs 1,200 crore through IPO by offer for sale of shares.  The company proposes to issue 41, 08, 81,400-equity shares of face value of RS 10 each, in the price band of Rs 23-26. The issue is likely to open on April 29 and close on 03-05-10.  At present, the Himachal Pradesh government holds 25.5 per cent and the rest by the Central government. After the issue, government stake will come down to 90 percent of the total issued and paid up capital of 410, 88,14,000 Equity Shares of Rs. 10 each.

JM Financial Consultants, IDBI Capital Market Services, IDFC – SSKI and SBI Capital Markets Limited are the BRLMs.

BUSINESS

SJVNL is a hydroelectric power generation company, originally established as a joint venture between the Central Government and the state government of Himachal Pradesh to develop and operate the Nathpa Jhakri Power Station. (NJHPS). 

The NJHPS is currently the largest operational hydroelectric power generation facility in India based on installed capacity, with an aggregate generation capacity of 1,500 MW, and is located on the Sutlej River in the state of Himachal Pradesh.

PROJECTS UNDER EXECUTION

SJVNL is constructing a power plant at Rampur, which is expected to be a 412 MW hydroelectric power generation facility located downstream from the NJHPS. The Rampur Project is expected to be completed and commissioned in 2013. The company has also been awarded the rights to develop and operate two hydroelectric projects with an expected aggregate generation capacity of 825 MW by the state government of Himachal Pradesh (in each with 51% participation interest). SJVNL has also entered into memoranda of understanding with the state government of Uttarakhand for three hydroelectric projects with an expected aggregate generation capacity of 363 MW. The company has further agreed to participate in a joint venture with NHPC and the state government of Manipur for the development and operation of a 1,500 MW hydroelectric power project to be located in Manipur.

SJVNL has diversified the operations to target hydroelectric power projects  outside  India, and have been awarded the rights on BOOT basis, a 900 MW hydroelectric power project to be located in the Sankhuwasabha district of Nepal. Through these projects, the company expects to increase the total installed power generation capacity by approximately 3,588 MW.

FINANCIALS

                                    RS IN CRORES

	07	08	09
TOTAL REVENUE	1,476.17	1,468.82	1,634.84
NET PROFIT	649.98	716.94	759.44
EPS	1.58	1.74	1.85
RONW	12.36	12.60	12.50

COMPARISON WITH THE PEERS

	FV	EPS	RNOW	BN/NAV	P/E
SJVN Limited	RS 10	1.85	12.50	14.79	-
JP Power	RS 10	2.70	13.60	21.90	125
KSK Energy	RS 10	1.80	5.20	66.10	129
NHPC	RS 10	0.90	6.20	17.80	24

STRENGTHS

• Experience in hydroelectric power project development.

• Established track record of operational excellence.

• Stable revenue stream through long-term power purchase agreements with state   electricity boards.

• Strong cash position to support project development and operations. 

RISKS AND CONCERN

• Primary risks affecting the success of the hydroelectric power projects relates to the land acquisition process.

• The financial performance is dependent on the NJHPS, which is the only operational project, and is dependent on the NJHPS for the revenues and operating cash flows and to finance the development of the other hydroelectric power projects. 

              

• SJVNL future success will depends the ability to respond to technological advances in hydropower generation.

• The development of hydroelectric power projects is capital intensive and typically requires a longer period as compared to other power projects. Any delay in execution will increase the cost, which will have adverse effect on operational efficiency.

 OPPORTUNITIES

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.

Power is an essential requirement for all facets of our life and has been recognized as a basic human need. The socio-economic development of the country depends on the critical infrastructure. The growth of the economy and its global competitiveness hinges on the availability of reliable and quality power at competitive rates. The demand of power in India is enormous and is growing steadily. The vast Indian power market, today offers one of the highest growth opportunities.

VALUATION AND RECOMMENDATIONS

For the half-year ended Sept -09, the company has achieved a turn over of Rs 1134cr and net profit of Rs619cr. The company will report an EPS in excess of Rs 2 for the FY2010. At Rs 23-26, the issue is reasonably priced. SJVNL has a decent track record. INVEST.