Stock Review: Swan Energy

This was one company which was referred to the Board for Industrial and Financial Reconstruction (BIFR) in 1995-96. Since then, the company has turned around, thanks to its real estate. Now the company knows where they want to go next. They have diversified into the power sector and all the cash that they would receive from the sale of their two real estate projects, one in Sewri and another one in Kurla, they would be channelising the entire cash flow into power projects.

They have a 49% stake in Gujarat Pipavav Power Company (GPPC). This is one stock which is a good bet because there is a limited downside. What is happening right now with real estate cum these kinds of stocks is people are using the discounted cash flow model right from 11% when it was hovering around the Rs 120-125 mark, to 18% and that is exactly where it is trending right now.

If we take a call from a four years perspective, if a stock is going to give you a discounted cash flow earnings of close to 17-18% why would you not treat it as a portfolio bet?

On a conservative side, if worse comes to worse, the stock should be hovering around Rs 65-70-72 odd mark but on the upside there could be a potential of 40-45%. For the first time, the company has actually turned back into black. This is because of their strong cash flow generations from real estate projects.

Because of this GPPC stake, they will be getting almost Rs 70-80 crore in terms of carbon emission rights over the next eight to 10 years, right from FY13. This quantum is not exactly decided by the United Nations Framework Convention on Climate Change (UNFCC). So we are still waiting on the report as to what could be the exact amount of cash flow. But before that as well, if someone wants to hide into a safe stock with good quality assets this is one stock that people can look at.