JSW Energy IPO opens; should you subscribe?

The initial public offering (IPO) of JSW Energy, a part of Sajjan Jindal-led JSW Group, has opened for subscription. The issue is of Rs 2,700 crore. The price band is between Rs 100 and Rs 115 per equity share and the issue will close on December 9, 2009.  A discount of Rs 5 to the issue price determined pursuant to completion of the book building process will be offered to retail individual bidders.

About the issue

It intends to utilise the issue proceeds for partially financing construction and development of the Identified Projects aggregating to 2,790 MW in capacity & 400 KV transmission project and mining venture (at cost of Rs 2,142.53 crore) and repayment of corporate debt (Rs 470 crore).

For the year ended March 31, 2009, the company has reported profit after tax of Rs 578.09 crore on total income of Rs 1,593.98 crore. For the half year ended September 2009, it has posted profit after tax of Rs 294.62 crore on total income of Rs 926.28 crore.

Incorporated in 1994, JSW Energy is a part of the JSW Group, headed by Mr. Sajjan Jindal, which is in turn a part of the O.P. Jindal Group. JSW Energy Ltd. is an established energy company with 860 megawatts, or MW, of operational generating capacity and 2,790 MW of generating capacity in the construction or implementation phase, 135 MW of which has been commissioned.

The book running lead managers to the Issue are JM Financial Consultants Private Limited, Kotak Mahindra Capital Company Limited, ICICI Securities Limited, IDFC-SSKI Limited, J P Morgan India Private Limited, SBI Capital Markets Limited, Morgan Stanley India Company Private Limited and IDBI Capital Market Serviced Limited.

Investment Advisor, SP Tulsian said one could apply in the issue even at the upper band of Rs 115 for listing as well as investment gains. He said, "The interesting part of the company is that, it is already a profit making with sizeable presence in the sector. For the six-months ending September 09, the total income of the company was at Rs 875 crore with PAT of Rs 267 crore." 

"Looking to the aggression and execution capability, which has been exhibited by the group in JSW Steel, the present progress of the power projects of the company, it has good prospects of growing faster than its peers in the energy sector, as an integrated player. Even now, the financials of the company are better placed with its peers. Adani Power, presently has an EV of Rs 7.20 crore/MW with total capacity to become operational by March 12. However, the company  has an EV of close to Rs 7.20 crore/MW by netting off investments and other related power business, as also considering cash flow from early commencement of 2,145 MW by October 2010."

"Considering all these, issue looks good even at the upper band of Rs 115 per share. It is likely that this issue will not disappoint, as happened with earlier 3 energy IPOs, of Adani Power, NHPC and Indiabulls Power. As such O.P. Jindal Group has remained investors friendly and have rewarded the investors well, over last 25 years. One can apply in the issue even at the upper band of Rs 115 for listing as well as investment gains."

Manisha Bhatt of Prabhudas Lilladher said one could subscribe to the issue at lower end of price band at Rs 100.

Amit Dalal of Amit Nalin Securities said he was wary of merchant pricing and power in case of JSW Energy. "I am a little wary of JSW Energy, mainly because I am very wary of merchant pricing and power. I don't believe merchant pricing in power can remain so expensive for the country at large and finally it will settle at lower levels. Today we are discounting uptrend in a very aggressive manner when we price these utilities including JSW, so that is my concern with JSW."

Brokerage views

Sharekhan

While comparing with other power utilities, JSWE (post issue) looks fairly priced both in terms of price/book (P/B) as well as market cap/MW basis. However, JSWE is having clear revenue visibility at least from the 995-MW operational capacity. Also, another 2,280MW capacity coming up within 18 months would provide further boost to its near future revenue stream. We believe, although listing gains may not be huge looking at reasonably priced offer price, the expected commissioning of power plants within two years provides JSWE a better revenue visibility vis-à-vis its peers.

Angel Broking

At the lower price band, the IPO is available at 2.8x and 2.3x FY2011E and FY2012E P/BV, respectively. JSWEL will have a market capitalisation of Rs 16,407 crore, compared to current market capitalisation of Rs 172,371 crore and Rs 21,848 crore of NTPC and Adani Power (APL), respectively. JSWEL's EV/MW works out to Rs 6.7 crore, while NTPC commands EV/MW valuation of Rs 5.4 crore with its proven track record in execution as well as operation of power plants. We have valued all the upcoming projects of the company individually and have arrived at a Fair Value of Rs 107/share, excluding all other initiatives in mining, equipment manufacturing and other projects totaling 7,740MW projects under implementation, as these businesses are at nascent stages. We believe that the IPO is fairly priced and keep a Neutral view on it."

Hem Securities

"The company is bringing the issue at price band of Rs 100-115 per share with a discount of Rs 5 to retail investor. However the valuations of the company still looks stiff even after taking into consideration the discount facility available to retailers as the P/E at the above mentioned band will be between 30.03-34.54 at post issue eps of Rs 3.33( Basis PAT annualized for 6 months ending Sept'09). Though looking after projects of the company which are presently working at various stages the long term prospect of the company looks good but at the present level due to high pricing as compare to its various listed peers we recommend the investor to avoid the issue.

JSW Energy doesn't look attractive at Rs 115: Udayan

JSW Energy follows more or less the pattern of the last few initial public offerings (IPOs) unfortunately that there is not much left on the table. The company has got nearly a 1,000 megawatts (MW) of operational power capacity, which is good. There are cash flows and there will be more cash flows not in four years time but over the next 18-24 months. So, their more than 3,000 MW target is not a four year target, it is more like 18-24 months target and if they deliver that, there will be reasonable cash flows.

At Rs 115, whether you look at book value or you look at market cap to megawatt, whichever way you slice it, at Rs 115 JSW has probably left nothing on the table. At Rs 100, I would say it is certainly more attractive than Indiabulls Power or Adani or Reliance Power. I think above all these three peer stocks, JSW Energy probably looks better at Rs 100, which is Rs 95 for retail if it gets done there. I think if retail gets it at Rs 95 and if we have a two year kind of perspective not four years or even an 18 months perspective, I guess you can make money on JSW. At Rs 115, it doesn't appear quite so attractive.

Published on Mon, Dec 07, 2009 at 16:15   |  Updated at Tue, Dec 08, 2009 at 16:51  |  Source : Moneycontrol.com