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JSW ENERGY
No margin for error
JSW Energy Limited (JSWEL) is tapping the capital market to raise INR 27 bn by December 4, 2009
offering shares in the INR 100-115/share price band. A discount of INR 5/share is
being offered to retail investors.
Reuters : NA.BO Bloomberg : NA IN
Financial closure achieved for 3,140 MW Post IPO share in issue (mn) : 1,608-1,643
M cap (INR bn/USD mn) : NA
The company has achieved financial closure for 3,140 MW of operational and
Avg. Daily Vol. BSE/NSE (‘000) : NA
under construction projects. Financial closure of 270 MW RWPL-II lignite plant and
240 MW Kuther hydro project is pending. However, JSWEL has placed the BTG
order for RWPL-II. It has also submitted a revised DPR to CEA for Kuther project.
SHARE HOLDING PATTERN (%)
Promoters : 76.6-78.3
Non-Promoters : 21.7-23.4
Targeting 11,400 MW by 2016
Besides the 3,650 MW of projects under construction, JSWEL is planning to
develop 7,740 MW projects by 2016.
Shankar.K
+91-22-4040 7412
shankar.k@edelcap.com
Abhishek Bhandari
+91-22-4063 5496
abhishek.bhandari@edelcap.com
Edelweiss Research is also available on www.edelresearch.com,, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Power
Shareholding pattern
Table 2. Shareholding structure pre and post the IPO
Name of Shareholder Pre-issue Post-issue @ 100/share Post-issue @ 115/share
Number of Share- Number of Share- Number of Share-
shares (mn) holding (%) shares (mn) holding (%) shares (mn) holding (%)
Promoter & promoter group 1,258 91.7 1,258 76.6 1,258 78.3
Others 114 8.3 294 17.9 271 16.9
Public - - 90 5.5 78 4.9
Total 1,373 100.0 1,643 100.0 1,608 100.0
Source: RHP
Details of issue
Table 3. Issue details
Share price of 100 Share price of 115
Amount to be raised (INR mn) 27,000 27,000
Fresh issue of shares (mn) 270.0 234.8
Existing shares (mn) 1,372.7 1,372.7
Number of shares post issue (mn) 1,642.7 1,607.5
Source: RHP, Edelweiss research
Company background
JSWEL was incorporated in 1994 and has been in the business of power generation since
2000. It currently has 995 MW of operational generating capacity and 2,655 MW of
generating capacity in the construction or implementation phase. In addition, the
company has power generation projects at an early stage under development with a
proposed combined installed capacity of 7,740 MW.
The company has formed a 74-26 JV with Maharashtra State Electricity Transmission
Company (MSETCL) to evacuate power from its Ratnagiri plant. It also has a 49-51 JV
with Rajasthan State Mining Company for mining lignite for its 1,080 MW lignite power
plant in Rajasthan.
JSWEL (20% stake) has also formed a joint venture with Toshiba for manufacturing
steam turbines and generators.
RWPL II 270 Jan-13 Short term Domestic lignite / 13,500 3:1 100
imported coal
Kuther 240 Dec-15 Short term NA 19,152 1.27:1 100
Transmission km
JPTL 169 Jun-10 Long term NA 5,800 3:1 74
Mining
BLMCL 7 mtpa Jul-10 Long term at regulated prices NA 7,028 0.9:1 49
In addition, the company is pursuing 7,740 MW of projects which are expected to come
up by FY16.
Valuation
We have done a NPV-based valuation for 3,410 MW of operational and under-
construction projects and the 169 km transmission line JV. We have valued all the
projects at 13% cost of equity. We have not valued 270 MW RWPL II as the lignite
linkage is pending and 240 MW Kuther project as the company has filed for a revised
DPR with CEA. Our valuation stands at INR 82-84/share depending on the dilution
(13.4% at upper band and 15.1% at the lower band).
Transmission km INR mn
JWTPL 169 768
Total 107,832
IPO money 27,000
Post-IPO valuation 134,832
Value/share @ lower band 82
Value/share @ upper band 84
Source: Edelweiss research
At the offer price of INR 100-115/share, the stock is being offered at ~2.7-2.8x post
issue book value. We believe it is leaving limited room for error by assuming negligible
execution and fuel risks. We see limited/no upsides at the offer price and recommend
‘DO NOT SUBSCRIBE’ to our investors.
Sensitivity analysis
We have done sensitivity on the value share on various scenarios of cost of equity,
merchant rates beyond FY12, gross PLF and FOB coal cost.
Table 11: Sensitivity of valuation/share on merchant rates and FOB coal cost
Coal price (FOB - USD/ton)
84 35 40 45 50 55 60
3.0 71 66 62 58 54 50
Merchant rate 3.5 83 79 75 71 67 63
4.0 96 92 88 84 80 76
4.5 109 105 101 97 93 89
Source: Edelweiss research
2. Faster-than-expected execution.
Financial Statements
Edelweiss Securities Limited, 14th Floor, Express Towers, Nariman Point, Mumbai – 400 021,
Board: (91-22) 2286 4400, Email: research@edelcap.com
Recent Research
Rating Distribution* 87 51 13 153 Buy appreciate more than 15% over a 12-month period
Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved
Edelweiss Research is also available on www.edelresearch.com ,Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. EdelweissEdelweiss
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