JSW Energy IPO

Considering the status of JSW Energy's projects, its projected timelines and funding plans, the stock looks attractive. Investors can subscribe to the issue with a 2-3 year outlook

 

   JSW Energy is coming out with its initial public offering (IPO), with an issue of 23.8 - 27.4 crore equity shares. At the offer price of Rs 100-115, with retail discount of Rs 5, the issue would raise around Rs 2,700 crore from the primary market. The issue represents around 15-17% of post IPO equity capital. The company would command a market cap of Rs 16,400- Rs 18,900 crore at its price band. Of the proceeds, the company plans to invest Rs 2,140 crore for generation power projects and a transmission and mining project. It also plans to repay corporate loan of about Rs 470 crore from the proceeds. Considering the status of its projects, projected timelines and funding plans, the stock looks at a comfortable position. Investors can subscribe to the issue with a 2-3 year outlook.

COMPANY'S BUSINESS:

 

 

The company currently has 995 mw of commissioned capacity, which includes two units of 300 mw and one unit of 135 mw, commissioned this year. Further, it has two projects "under construction", which would add 2,655 mw to its capacity. These two projects are expected to be completely commissioned by April'11, about 570 mw of which is expected to be commissioned in FY10 itself. One of the projects is based on fuel from its captive mine, and the company is in the process of acquiring land for this. Another two projects of 510 mw are "under implementation", which includes one hydel project of 240 mw capacity, to be commissioned by Jan'13 and Dec'15. The 'under construction' projects of the company look to be on schedule, with fuel supplies arrangement, backed by the fact that the company has already spent more than 70% of the cost for these projects. However, development of mine could force the company to depend on external source of fuel on short-term basis, in case of delay in development of captive mines. 

   Besides these projects, it also has "under development" projects totaling 7,700 mw, expected to be commissioned during Aug'14-'15. Company has already secured fuel linkage, probably the most critical link in a power projects development, for nearly 60% of the requirement for these projects.

OUTLOOK:

Since most of its projects are still in construction stage, its financials do not reflect the potential. The company will have to be valued based on its projected cash flows, and it looks well placed with expected time lines for the commissioning of the projects, fuel supply and off-take agreements. As it has recently commissioned some units and is at an advanced stage of commissioning for the remaining units, it is also expected to generate sufficient cash profit in coming quarters. Further, average realisation for the company is quite impressive, in the range of Rs 4.9- Rs 6.0 during the period FY09-H1'FY10, against fuel cost of Rs 1.9- Rs 3.0, and provides sufficient margin for the company. With a pass-through arrangement and significant part of power being sold on spot basis, the earnings is expected to remain strong. The stock provides ample scope for appreciation with a 2-year outlook and investors can subscribe to the issue, with medium term outlook, at cut-off price.

Price Band:

Rs 100 - 115 per share