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Jaiprakash Power Equity Research

HomeCompanyJaiprakash Power Equity Research

Date of Research – 19 January 2016

Price – Rs. 6.27

About the Company

Jaiprakash Power Ventures Limited (“Jaiprakash Power” or the “Company”) is a subsidiary of the Jaiprakash Associates Limited (JAL), which owns 67.93% of the Company. JPVL is engaged in the business of power generation and transmission. As of March 31, 2013, JPVL had three operative hydro-electric plants: 300 megawatt Jaypee Baspa-II Hydro-Electric Plant in Himachal Pradesh; 400 megawatt Jaypee Vishnuprayag Hydro-Electric Plant in Uttarakhand, and 1,000 megawatt Jaypee Karcham Wangtoo Hydro-Electric Plant in Himachal Prades. The aggregate generation capacity of the three operational Hydro projects – 1,700 MW. In addtion, the Company through a 74% subsidiary operates a 217 km power transmission line from Himachal Pradesh to Haryana.

JPVL has three thermal power projects with an aggregate capacity of 3,800 MW under various stages of implementation which are likely to complete in various stages and timelines with the latest being scheduled to turn operational before the end of the year 2015. Additionally, the Company has various power projects (both hydro and thermal based) which are in preliminary stages of development aggregating to 7,920 MW of capacity with no scheduled completion timelines.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016  FY 2017
Total Income from Operations 2,458.63 2,874.39 4,139.60 4,114.38  4,657.47 
Expenses 525.98 852.01 1,360.57 1,564.60  2,971.21
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 1,932.65 2,022.38 2,779.03 2,549.78  1,686.26  
Depreciation 376.49 499.05 518.07 632.82  771.21  
Finance Costs 1,186.79 1,511.32 2,189.11 2,498.87  2,749.64  
Other income 38.39 39.13 85.38 76.37  87.06  
Exceptional items 0.08 (4.46) (102.81)  – 
PBT 407.76 51.06 161.69 (402.73)  (1,747.53) 
Tax 50.11 4.22 (7.16) (274.88)  (452.82) 
Extraordinary items 150.00  – 
PAT (before Minority Interest and share of Associates) 357.65 46.84 168.85 (277.85)  (1,294.71) 
Profit/ (loss) attributable to Minority Interest 6.44 13.98 17.76 13.10  (61.75) 
Consolidated Profit / (Loss) for the year 351.21 32.86 151.09 (290.95)  (1,232.96) 

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016  FY 2017
Operating Profit Margin Ratio 78.61 70.36 67.13 61.97  36.21 
Net Profit Margin Ratio 14.55 1.63 4.08 (6.75)  (27.80) 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 2,624.76 2,938.00 2,938.00 2,938.00 2,938.00 
Reserves & Surplus 2,834.01 3,522.22 3,407.05 3,472.65 4,661.76 
Deferred revenue 392.07 487.16 562.66 633.21 449.72 
Net worth (shareholders funds) 5,458.77 6,947.38 6,907.71 7,043.86 8,049.48 
Minority Interest 75.92 184.44 424.28 429.87 429.57 
Long term borrowings 15,678.98 20,748.24 24,274.61 26,603.61 21,724.31 
Current liabilities 3,357.35 4,343.36 5,757.32 7,952.81 5,737.62 
Other long term liabilities and provisions 418.93 745.06 685.91 448.91 363.71 
Deferred Tax Liabilities 124.24 174.28 178.50 196.64 – 
Total Liabilities 25,506.26 33,142.76 38,228.33 42,675.70 36,304.69 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 19,425.34 27,464.74 33,159.38 36,851.67 31,535.08 
Noncurrent Investments 1,985.94 1,985.94 1,986.04 1,985.94 1,985.94 
Miscellaneous Expenditure – 
Current assets 1,922.55 2,238.13 1,943.41 2,201.84 1,607.39 
Long term advances and other noncurrent assets 2172.43 1,453.95 1,139.50 1,636.25 1,114.81 
Total assets 25,506.26 33,142.76 38,228.33 42,675.70 36,304.69 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 7.34 5.22 6.40 8.16 8.44 
ROE / RONW 6.86 5.77 0.48 2.14 (3.45) 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 2,458.63 2,874.39 4,139.60 4,114.38  4,657.47 
Growth (%) 52.18 % 16.91 % 44.02 % (0.61 %)  271.07 % 
PAT (Rs. Cr.) 357.65 46.84 168.85 (277.85)  (1,294.71) 
Growth (%) (10.81 %) (86.90 %) 260.48 % (264.55 %)  – 
Earnings Per Share – Basic (Rs. ) 1.35 0.11 0.51 (0.99)  (3.94) 
Earning Per Share – Diluted (Rs. ) 1.30 0.11 (0.96) (0.99)   (3.87) 
Price to Earnings 25.36 215.73 14.74 –   

Dividend History

The Company has not recommended any dividend over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Jaiprakash Power’s average current ratio over the last 5 financial years has been 1.02 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Jaiprakash Power’s average long term debt to equity ratio over the last 5 financial years has been 3.02 which indicate that the Company is operating with a high level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Jaiprakash Power’s average interest coverage ratio over the last 5 financial years has been 1.55 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Jaiprakash Power reported a promoter holding of 31.16 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 8.19 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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