Showing posts with label fpo ntpc navratna. Show all posts
Showing posts with label fpo ntpc navratna. Show all posts

Saturday, February 6, 2010

RURAL ELECTRIFICATION CORPORATION LIMITED (REC) - NAVRATNA - CONSISTENT PERFORMER – INVEST.

ISSUE DETAILS:

Public issue 17,17,32,000 equity shares of Rs 10/- each, including fresh issue of 12,87,99,000 equity shares and offer for sale of (by GOI) 4,29,33,000 equity shares in the price band to be determined through competitive bidding process. The issue opens on 18-02-10 and closes on 23 -02 10. Kotak Mahindra Capital Company Limited, DSP Merrill Lynch Limited, ICICI Securities Limited, JM Financial Consultants Private Limited and RBS Equities (India) Limited are the BRLMs.


BUSINESS:


REC is a public financial institution in the power infrastructure sector. The Corporation is engaged in the financing and promotion of transmission, distribution and generation projects throughout India. REC occupies a key position in the GOI's plans for the growth of the power sector.

REC assists clients in formulating and implementing a broad array of power projects and finances those projects. Clients primarily include public sector power utilities at the central and state levels and private sector power utilities. The area of activities include, an integral role in the development of relationships with clients, the operation and promotion of business, loan appraisal, loan sanction and post-sanction monitoring processes. REC’s primary financial product is project-based long-term loans. The corporation funds business with market borrowings of various maturities, including bonds and term loans. The sound financial position enable the Corporation to raise funds at competitive costs and there fore able to price financial products competitively. REC commenced our operations in 1969 for developing the power infrastructure in rural areas. REC has contributed significantly to the development of rural India and India's agriculture through funding of transmission and distribution projects in rural areas.



As of September 30, 2009, REC is one of the 18 Indian public sector undertakings to be granted 'NAVRATNA' status by the Department of Public Enterprise by virtue of operational efficiency and financial strength. The GoI has rated REC’s performance as “Excellent” continuously since 1994. The corporation has been ranked among the top ten public sector undertakings in India by the Ministry of Heavy Industries and Public Enterprises for the years from 2000 -2005, except in 2003.


OBJECTS OF THE ISSUE:

The object of the Offer for Sale is to carry out disinvestment of 4, 29, 33,000 Equity Shares by the GOI. REC will not receive any proceeds from the Offer for Sale. Object of the Fresh Issue: The Corporation intends to utilise the funds being raised to augment capital base to meet our future capital requirements arising out of growth in business.


FINANCIALS:

The total income recorded for the year 07-08 and 08-09 is Rs 3541.80cr and Rs 4923.30cr. The net profit earned for the same period was Rs 958.68 and Rs 1386.46cr.

Earning Per Share - (in Rs) RONW (%)

March 31, 2007 - 10.23 17.36
March 31, 2008 - 12.28 16.10
March 31, 2009 - 16.03 20.09
Weighted Average 13.81 Weighted Average 18.31


Net Asset Value per Equity Share as on September 30, 2009: Rs. 90.00.


Domestically, REC holds the highest long-term borrowing domestic credit rating from each of CRISIL , ICRA , Fitch and CARE Limited. Globally, REC holds long-term borrowing ratings from Fitch and Moody's that are on par with sovereign ratings for India.



MATTERS OF CONCERN:

• The business and industry are dependent on the policies and support of the Government of India, which makes REC susceptible to changes to such policies, and the level of support it receives.

• The Corporation has significant concentration of outstanding loans to certain borrowers and if the loans to these borrowers become non-performing, the quality of the asset portfolio may be adversely affected.

• REC is power sector-specific public financial institution. This sector has a limited number of borrowers. In addition, many of these borrowers are public sector utilities that are loss making and therefore may not have liquidity to repay their borrowings.

• As on September 30, 2009, ten borrower groups to which REC had the highest amount of outstanding loans in the aggregate accounted for 77.89% of total outstanding.

• REC’s ability to compete effectively is dependent on the ability to maintain a low effective cost of funds. Historically, REC had access to funds -equity financing and loans received directly from GOI, as well as tax concessions with respect to, and guarantees of, certain types of bonds and borrowings that enabled REC to price such borrowings at a lower rate of interest.


• Currently, REC funds its business significantly through borrowings that have shorter maturities than the maturities of new loan assets. Funds mis - match and volatility in interest rates may adversely affect the financials.


• REC has granted loans to the private sector on a non-recourse or limited recourse basis, which increases the risk of non-recovery and could expose REC ability to borrow from various banks. RBI imposing restrictions on banks in relation to their exposure on NBFCs (including REC), may adversely affect growth and margins.


• Corporation had continuous negative cash flow in the past.


• REC is registered as a NBFC with the RBI. Currently, REC is a ‘non-deposit accepting NBFC and yet to obtain specific approval from the RBI for accepting public deposits.


• The cost of funding and the pricing of loan products are determined by a number of factors, many of which are beyond REC’s control.


• The power sector financing industry is becoming increasingly competitive and REC’s profitability and growth will depend on the ability to compete effectively and maintain a low effective cost of funds.


• The funding requirements of the Company and the deployment of a portion of the Net Proceeds are based on management estimates and have not been independently appraised by any bank or financial institution.


• Shortages in the supply of crude oil, natural gas or coal could adversely affect the Indian economy and the power sector projects to which the company has exposure, which could have a material adverse effect on the business, financial condition and results of operations.


OPPORTUNITIES:


India is among the fastest growing economies globally and has grown at an average rate of 8.2% perannum during the last five years. The per capita energy consumption in India is relatively low in comparison to most other parts of the world, including other developing nations. According to data from Key World Energy Statistics (2009),
India's per capita electricity consumption was 543 units per year, as compared to a world average of 2,752 units per year and yearly per capita consumption of 3,252 units in Middle Eastern countries, 1,838 units in Latin America countries, 2,346 units in China, 705 units in Asian countries and 578 units in African countries.
The power industry in India has historically been characterized by energy shortages, provides opportunities for funding mega power projects, where in, REC is a leader and has the requisite expertise.


RECOMMENDATIONS:

The share, currently is quoting around Rs 235/- in exchanges (52 week - high/low of Rs 275/75) Investment in the company may be considered depending upon the prevailing market price during the issue period. The price should be, at least, Rs 15 -17 less than the market price.

Sunday, January 31, 2010

FPO -- NTPC: NAVRATNA – MAY NOT SHINE IMMEDIATELY - GOOD LONG TERM BET - INVEST

India’s largest power generation company, NTPC is entering the capital markets on February 3, 2010 with its follow-on public offer (FPO) of 412,273,220 equity shares of Rs 10 each, in the price band to be determined through competitive bidding process. The FPO will close on February 5, 2010.The offer marks a ‘divestment’ of 5% in NTPC by GOI. After the FPO, Govt holding will come down to 84.5% of Equity Share capital.

ICICI Securities Limited, Citigroup Global Markets India Private Limited, JP Morgan India Private Limited and Kotak Mahindra Capital Company Limited are the book running lead managers to the Offer.

BUSINESS:

NTPC is the largest power generating company in India. The owned, installed power generating capacity is approximately 18.6% of India's total installed capacity. In Fiscal 2009, the company contributed 28.6% of the total power generation of India. NTPC is the top IPP in Asia, and ranked second in the world, on the basis of asset worth, revenues, profits and return on invested capital, according to a study conducted by Platts, of the McGraw-Hill group. As of September 30, 2009, the total installed power generation capacity is 30,644 MW, including 28,350 MW of generation capacity through 112 units owned by NTPC and 2,294 MW of capacity through 2 joint venture companies. Of the owned capacity, 86.0% is coal-based, operated through 15 coal-based power stations, and 14.0% is gas-based, operated through seven gas-based power stations (including one naphtha-fired station). In the year 2009, NTPC generated 206.9 billion units of electricity through owned stations. NTPC operates through power stations at a level of efficiency that exceeds the average in India, based upon availability factor (which is a measure of how often a station is available to generate power) and average plant load factor (“PLF”) (which is a measure of how much of its capacity a plant actually uses to generate electricity). During 2008-09, the coal-based stations operated at an average availability factor of 92.5%, and achieved an average PLF of 91.1%, compared to the all-India average PLF for coal-based stations of 77.2%. Out of 15 coal-based power stations, four operated at a PLF of greater than 95.0% and one operated at a PLF of 99.4%. The gas-based stations operated at an average availability of 86.7% and an average PLF of 67.0%, compared to the all-India average PLF for gas-based stations of 57.6%.


OBJECTS OF THE ISSUE:

The objects of the Offer are to carry out the divestment of 412,273,220 Equity Shares by the Selling Shareholder (Govt of India). NTPC will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.



FINANCIALS:

The company achieved a turn over of Rs 40017.70cr and Rs 45272.80cr for the years 08 and 09 respectively. Net profits after tax were Rs 7414.80cr and Rs 8201.30cr. The weighted average EPS for the above periods was Rs 9.63. The weighted average RoNW for the same period is 14.23. NAV as on 30-09-09 is Rs 75.01.


RISKS FACTORS:

• The company is entering into new businesses – power trading /distribution, and to develop nuclear power stations.

• The company has formed joint ventures for the manufacture of equipment used in the power business. Prior to entering these joint ventures, NTPC was not engaged in manufacturing business. NTPC’s ability to succeed in the manufacturing business is to be seen.

• The State Electricity Boards (SEBs) and the state owned distribution companies are the largest purchasers of power from NTPC and currently account for more than 90% of sales of electricity. NTPC is obligated to supply power to them in accordance with the terms of the allocation letters issued by the GoI for each of the power stations. Historically, NTPC had significant problems in recoveries from SEBs.

• The success of NTPC’s operations, and the proposed expansion of generation capacity, will be dependent on, among other things, the company’s ability to ensure unconstrained availability of fuels at competitive prices during the life cycle of the existing and planned thermal power stations. Fuel represents the largest expense and the two primary fuels being coal and gas.

• NTPC faces competition because of deregulation in the Indian power sector.

• NTPC has executed a letter of intent with Reliance Industries Limited (“RIL”) for the purchase of gas, which if not declared as a valid and binding contract between NTPC and RIL, may negatively impact the financial results of operation.


STRENGTHS:

• Leadership position in the Indian power sector.
• Strong cash flow.
• High operational efficiency of coal-based stations.
• Long-term agreements for coal and gas supply.
• Strategic locations near fuel source.
• Ability to turn around under-performing stations.
• Experienced in-house engineering capabilities.
• Advanced information technology platform.
• Strong balance sheet.
• Government support.


RECOMMENDATIONS:

The share, currently, is quoting around Rs 215/- in the exchanges. Unless the offer price is substantially less than the market price, it does not make any sense to invest in the company’s shares. Invest if it is going to be priced at Rs 200/- or below. However, it is a good long-term bet.