Sunday, May 13, 2012

Hydro Power Sector

Following listed companies are in the hydro power sector in India:

  • Jaiprakash Power Ventures
  • NHPC (National Hydroelectric Power Corporation)
  • SJVN (Satlaj Jal Vidhyut Nigam) 
This sector is utility so returns on capital are controlled by government and the companies cannot charge the amount they wish from their end-users/customers. The following table summarizes their financial conditions:
Financial RatioJaiprakash Power VenturesSJVNNHPC
Market Cap (Crore)9777788022141
Net Worth (Crore)5170720524584
Debt (Crore)12381175314569
Debt/Equity2.40.240.59
Average ROCE (five years)10.1515.206.41
Average Interest Cover (five years)2.55.484.76
Interest Cover (last year)1.628.125.68
Price/Book1.891.090.9
Mutual Fund HoldingHDFC, etc...ICICI, Tata, etc...UTI, ICICI, Tata, etc...
Dividend Yield4.23.33
On most of the parameters, except price/book ratio, SJVN is better than the other two. JP power ventures is highly indebted and most probably will not be able to meet its financial obligations sometime or the other in the next few years. How can a value investor like me suggest you to buy the shares of a company whose bonds are not investment grade? So the best investment looks like SJVN at this point of time.
Image: markuso / FreeDigitalPhotos.net
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3 comments:

Mahesh said...

Hi Sir,

I didnt get the line "This sector is utility so returns on capital are controlled by government"....would be glad to learn from you.....your comments highly appreciated.

Thanks,
Mahesh

Chinmay said...

@ Mahesh,

Read the SJVN draft red herring prospectus here:

http://www.sebi.gov.in/dp/sjvndraft.pdf

Page 64 says:
We have obtained CCEA approval for project costs of Rs.
81,877.13 million.

Of actual project costs incurred, approximately Rs. 79,908.0 million has been approved by the CERC as capital
expenditures which are recoverable through the imposition of annual fixed charges, and as qualifying capital
expenditures on which we are entitled to a return on equity of 15.5%, under current Government policies and
regulations.


So government puts a cap on how much ROE a power company can earn from its equity capital. The same is the case for gas transmission and distribution businesses such as GAIL or Indraprastha Gas. You must have already read court case going on between PNGRB (Petroleum and Natural Gas Regulatory Board) and Indraprastha Gas.

Mahesh said...

Chinmay Sir,

Thanks for your gann...now got it :-)

Yes i heard court case...but IGL is still buy for long term...

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