SJVN - Long Term Investment

Introduction : 

The SJVN Ltd was incorporated on May 24, 1988 as a joint venture of the Government of India ( GOI ) and the Government of Himachal Pradesh for Hydro-electric power projects. The Nathpa Jhakri Hydro – Electric Power Station– NJHPS ( 1500 MW ) was the first project undertaken by SJVN for execution in 2003-04. 1500 MW NJHEP has been designed to generate 6612 MU of electrical energy in a 90% dependable year with 95 % machine availability. Out of the total energy generated at the bus bar, 12 percent is supplied free of cost to the home state i.e. Himachal Pradesh. From the remaining 88% energy generation, 25% is supplied to HP at bus bar rates. Balance power has been allocated to the beneficiary states / UTs of Northern Region by Government of India. Govt Of India had come with an IPO of the Co with an offer price of Rs 26 per share and at a discount of 5 % to retail. So far price wise , the performance of Co is bad as it is not able to to trade above 26 and investors have not made money on the stock if they have not lost much. Govt presently holds a stake of 90 % in the Co which is a drag as any FPO will depress the price down in short run.

SJVN’s Future Projects

SJVN is currently constructing the 412 MW Rampur Hydro Electric Project in the state of Himachal Pradesh which is expected to be completed by Sept 2013. SJVN is also implementing three hydro projects (252 MW Devsari, 60 MW Naitwar Mori and 51 MW Jakhol Sankri) in the state of Uttarakhand. Further, SJVN has also been allocated Luhri Hydro Electric Project (775 MW) and Dhaulasidh HEP (66 MW) in the state of Himachal Pradesh for preparation of Detailed Project Report and subsequent execution. Further, SJVN is entering into a Joint Venture for the implementation of 1500 MW Tipaimukh HE Project in Manipur with an equity participation to the extent of 26%. The company has now gone across the borders and has bagged 900 MW Arun III hydroelectric project in Nepal through, competitive bidding. In addition, the corporation has also been assigned the task of updating/preparing DPRs of two Hydro Electric Projects 600 MW Wangchu HE Project and 650 MW Kholongchu HE Project in Bhutan by Govt. of India.

SJVN Venturing into Wind Energy Sector

SJVN is venturing into the Wind Energy field with an initial addition of 50MW of wind energy by the end of 2012 to promote and develop more renewable resource of energy. The consultant for this new venture of setting up of the 50MW wind Power Project has already submitted the feasibility report for establishing the project with the advantages of various locations.

Financials :

Despite of constraint of a single plant, Co is able to increase electricity generation from it year on year basis. In last four years, Co has increased generation from 5942 MU to 7140 MU exceeding all performance criteria set by GOI. Even this year in Q1, Co has reported 226 MU in excess of last year same Quarter and 363 MU more than target set by GOI. It results in extra incentive for Co. Co sales revenue has gone up from 1618 Cr in 2006-07 to 1812 Cr this fiscal. Profit in this period have increased from 732 Cr to 912 Cr this fiscal resulting in an EPS of 2.25 Rs/share. It is expected that co will be able to add in its capacity generation at a rate of 8-10 % pa. It is expected that Co will post an EPS of 2.5 Rs/share this fiscal and a rise of 15 % EPS growth can be expected for many years to come ahead. Co is more or less debt free as surplus cash is equal to long term debt. Co is paying dividend of 0.8 Rs/share and at a price of Rs 21-22 , it more or less results in a div yield of 4 % . It is expected that co will be having an EPS of Rs 4-5 per share in next 4-5 years with a dividend of 1.6-1.75 Rs/share. 

Technical Analysis :

Co share price was listed in may 2010 and it was a lacklustre listing. Since its listing co share price is lacklustre and after hitting a high of 25.8 Rs/share it hit a low of 19.4 Rs/share but it rebounded quite sharply  from sub 20 Rs level. Dspite of Nifty testing 5200 level co share price refused to follow and hit 21 Rs/share outperforming major indicies. After consolidating for almost two months, co share price is making an upmove and is facing resistance at its 200 DMA of 22.2 , 22.65 & 23.5 Rs/share. 

MACD has turned positive on daily charts and from Zero level it has gone back into positive terriotry again which is a positive sign. 

Investment Theme :

          SJVN is a hydro Power co and is doing extremely well. Co is having a portfolio of various projects which are under various completion stage. Recently, Co have announced to get in Wind Power also with setting of 50 MW power generation at an investment of 300 Cr which will be excellent for the Co. Co's 1500 MW NJHPS  will be a huge cash flow for the Co. Co is targeting completion of Rampur Project by Sep 2013 which once completed will be a big positive for the Co not only from cash flow point of view but from incremental profitability point of view. What I like about the Co is sweating of its assets !!! Co is giving excellent performance every year. Co is giving a dividend of  8% this year with an expected increase of 10 % almost every year. 

   On Replacement Cost also, co share price looks undervalued. NJHPS project was completed in year 2004 at app cost of 8500 Cr. If same project is implemented today, it will not cost less than 16000-17000 Cr Rs. Considering 20% depreciation level, it is worth 12000-13000 Cr at present value. Besides, they have already invested more than 1200 Cr in Rampur project. Their debt level is more or less equal to cash level. Considering negligible value of other projects in hands, Co's EV value is more or less equal to 13500 Cr. With an Equity of 4136 Cr, replacement cost works out to be 32-33 Rs/share.

  I have invested 60,000 rs in the Co @ 21.65 for a steady flow of income. Though Co is likely to do extremely well but promoter high stake in Co does not auger well as there will be a chance of FPO of the Co in years to come which will be a drag on Co's share price. Co's share price is moving in a band of 3 Rs with upper band @ 22 and lower Band @ 19.5 which incidently is lowest price traded of the Stock.