After 15 years, the O P Jindal Group is coming to the market with an initial public offering (IPO) of JSW Energy. Brokerages say investors should avoid the Rs 2,700 crore issue, calling it another high-priced one with little left on the table for them. Edelweiss Securities asks investors to stay away.
“Our net present value (NPV)-based valuation of JSW Energy stands at Rs 82-84 per share. We believe the price band of Rs 100-115 per share leaves no margin for error. Execution delays, high coal prices, change in regulations in Indonesia, and operational risks pertaining to lignite plants are some of the key risks. We recommend ‘do not subscribe’ to investors as there appears to be limited/no upsides,” Shankar K and Abhishek Bhandari of Edelweiss wrote.
Prabhudas Liladhar analyst Nishna Biyani had a similar take. “At Rs 110, JSW Energy is expected to be valued at 2.4x price to book value of FY12 (expected) to post-issue book value, which, in our view is stiffly priced.”
JSW plans to repay a debt of Rs 475 crore from the IPO proceeds. The funds are also to be invested in its two ongoing projects in Maharashtra and Rajasthan. However, the firm has not yet got approval from the concerned state governments.
JSW Energy plans to set up a 1350 mw plant in Barmer, Rajasthan. However, the government has given approval for only 1080 mw capacity. Similarly, at the Ratnagiri project, the company plans to set up 1200 mw plant while it has entered into a memorandum of association with the state government for just 1000 mw.
Meanwhile, the Delhi HC on September 18 directed the Expert Appraisal Committee to re-examine environmental clearance granted for the 1200 mw plant.“JSW Energy is likely to sell 50% of the power generated to state electricity boards (SEBs) via long term power purchase agreements. Poor health of the SEBs would impact financials of the company and delay in payments/defaults would adversely impact operations,” Biyani said.
Edelweiss has also raised concerns over the possible exposure to risks in raw material costs. It said, “JSW Energy has tied up fuel for 3,380 mw out of the 3,650 mw of operational and under construction projects — of this 1,080 mw will run on domestic lignite, 2,060 mw on imported coal, and 240 mw is hydro capacity. All the purchase contracts for imported coal are linked to the RB Index, exposing the company to fuel price risk.”
Meanwhile, JSW Energy has raised Rs 464.86 crore through issue of shares to seven anchor investors under its public offer. The company has allotted 4.22 crore shares to 7 anchor investors, including ADAG firm Reliance Capital Trustee and Credit Suisse Singapore Ltd at a price of Rs 110 per piece, JSW Energy informed stock exchanges.
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