Recommendation from Power Generation and Distribution Sector
This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
SJVN LTD:IN A POSITION OF ‘POWER’
HERE IS WHY
✓Good financial improvement
✓Good growth prospects
✓Good returns on capital employed
SJVN Ltd. is a hydroelectric power generation company. The company is the largest operational hydroelectric power generation facility in India based on installed capacity with an aggregate generation capacity of 1,912 MW.
SJVN has gained wide experience and expertise in the development of large hydro power projects from concept to commissioning including operation and maintenance and management of silt during project operation. SJVN has in-house capability for complete design of mega hydro power projects, large value contract award, and contract and project management. SJVN has efficient plant operations by minimising the downtime of machines, thereby maximising the plant availability factor. It has a stable revenue stream through long-term power purchase agreements with state electricity boards and distribution licensees.
The company reported net sales of Rs2,696.71 crore in FY20, an increase of 1.98 per cent. It had reported net sales of Rs2,644.46 crore in FY19. The company reported PBIDT of Rs2,217.37 crore in FY20, an increase of 0.33 per cent. It had reported PBIDT of Rs2,210.02 crore in FY19. The company reported PAT of Rs1,655.64 crore in FY20, an increase of 21.51 per cent. It had reported PAT of Rs1,362.58 crore in FY19. The company has reported cash from operating activities of Rs1,713.53 crore in FY20 as against Rs1,017.89 crore it reported in FY19.
Its net sales were Rs493.87 crore in December 2020, up by 1.10 per cent from Rs488.49 crore in December 2019. The PBIDT was at Rs546.43 crore in December 2020, up 56.63 per cent from Rs348.86 crore in December 2019. It quarterly net profit was at Rs196.65 crore in December 2020 as against net profit of Rs215.08 crore in December 2019, a decrease of 8.57 per cent. There is unharnessed hydro potential of 1,04,300.78 MW in India (as on March 31, 2020) primarily located in the hill states of Himachal Pradesh, Uttarakhand, Arunachal Pradesh, Jammu and Kashmir and Sikkim. There is also huge untapped hydro potential of the neighbouring countries.
As such, SJVN is diversifying into alternate energy sources such as wind and solar energy and power transmission. The above industry scenario indicates that there is ample opportunity for consistent growth of business in hydro, renewable and thermal energy sector in the times to come with growth in demand. The company is developing a 1,320 MW super-critical thermal power project at Chausa near Buxar in Bihar, 900 MW Arun-III HEP in Nepal and 60 MW Naitwar Mori HEP in Uttarakhand.
Measures adopted by SJVN in operation and maintenance of 1,500 MW NJHPS and 412 MW RHPS have improved its capability in efficient operation and maintenance of power stations. The company has recently received order for projects totalling 501 MW from the Government of Himachal Pradesh and 679 MW Lower Arun Hydro Electric Project in Nepal. On completion of the 679 MW Lower Arun Hydro Electric Project it will generate 3561 million units of electricity per annum. The company is almost debt-free and the debt to equity ratio is 0.188. On the returns front, it has ROE and ROCE of 14.38 per cent and 16.86 per cent. The stock is trading at a PE multiple of 7.45x. By virtue of these factors, we recommend our reader-investors to BUY this stock.
