Stock Pick From Electric Utilities Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.  

HERE IS WHY

Company’s FY18 execution plan 

Achievement of electricity generation of 9045 million units

Attractive valuations

SJVN is primarily engaged in the business of generation and transmission of power. The company operates through the thermal power segment. It is implementing power projects in Himachal Pradesh, Uttarakhand, Bihar, Gujarat, Rajasthan and Arunachal Pradesh in India, besides neighbouring countries like Nepal and Bhutan.

In FY18, SJVN’s 50 megawatt wind power plant will be commissioned. The company also invited tenders for 60 megawatt wind power plant.  It is also in discussion for one solar power plant of 50 megawatt in Kanpur in Uttar Pradesh. SJVN is very hopeful that this new power plant will also be commissioned in the next financial year. The capital cost of the 50 megawatt plant is Rs.320 crore.

On the financial front, SJVN’s revenue decreased 1.27 per cent to Rs.2085 crore in 9MFY17 as compared to same period in previous financial year. The company’s EBITDA reduced 5.16 per cent to  Rs.1777 crore in 9MFY17 on a yearly basis. Its net profit increased 0.09 per cent to Rs.1263 core in 9MFY17 as compared to same period in previous fiscal year.

On trailing twelve-month financial front, SJVN’s top line decreased 0.61 per cent to Rs.2450 crore at the end of December 2016 as compared to same period in previous financial year. The company’s EBITDA declined 7.13 per cent to Rs.2043 crore at the end of December 2016 on yearly basis. Its net profit also reduced 2.52 per cent to Rs.1410 core in December 2016 as compared to same period in previous fiscal year.

SJVN has surpassed the MoU targets of generating 8700 million units of electricity, and has achieved generation of 9045 million units from its three power plants in FY17. The country’s largest 1500 MW Nathpa Jhakri Hydro Power Station in HP had recorded a 103.5 per cent achievement of the targets, with a generation of 7050.62 million units, while the downstream 412 MW Rampur Hydro Power Station had surpassed the targets by 110 million units, with a generation of 1960.36 million units. SJVN's 47.6 MW wind power station at Khirvire has generated 34 million units of electricity.

SJVN has now successfully ventured into the field of solar power generation with the commissioning of 5 MW Charanka Solar Power Project in the state of Gujarat in FY17.

SJVN has given 3.15 per cent dividend yield to its shareholders. The company’s ROE and ROCE stood at 13.19 per cent and 14.42 per cent respectively in FY16. Its total debt to equity ratio remained at 0.24x, whereas, its interest coverage ratio stood at 8.76x in FY16. SJVN has cash of Rs.4900 crore, and debt stood at Rs.2500 crore as of December, 2016.

On the valuation front, share price of SJVN is trading at trailing twelve months (TTM) PE of 10.31x as compared to  peers such as Adani Transmission (22.51x) and NTPC (13.7x). At the same time, the company’s PE is attractive as compared to industry PE of 14.93x. We recommend our reader-investors to BUY the stock.