Jaypee Infratech: JP ho

Jaypee Infratech is entering the capital market on 29th April 10 to 4th May 10, with a public issue of Rs.1,650 crores, comprising of a fresh issue, as also an offer for sale of 6 crore equity shares, by J P Associates, being the promoters of the company, in the price band of Rs.102 to Rs.117 per share. A discount of 5% is to be given to Retail Individual bidders, on the discovered price.

The company is developing 165 kms., 6 lane Expressway between Noida and Agra, with concession period of 36 years, as also developing 6,175 acres of land as real estate development, at 5 locations between Noida and Agra, on a lease of 90 years, with each location having 1,235 acres of land. Land of 5,060 acres will be required for Expressway and 6,175 acres will be for real estate development and entire 11,235 acres of land would be the actual cost of acquisition by Yamuna Expressway Authority (YEA). This total land is estimated to cost Rs.2,619 crores, of which Rs.2,556 crores, being 98% has already been paid by the company to YEA.

Apart from this, cost of construction of expressway will be Rs.5,300 crores with interest cost during construction of Rs.1,350 crores and contingencies and preliminary expenses of Rs.470 crores. Aggregate cost to the company, of expressway and real estate development land, would be Rs.9,739 crores, of which, Rs.6,250 crores has been spent till 28th February 10. The company is running two years ahead of its expressway project and would complete it by March 11. Real Estate development is a self sufficient project, which has infact, already realised Rs.1,090 crores in last 21 months, from sale of real estate area. Of total real estate land, 55% of the land is in NCR region. Moreover, sale proceeds will not attract any tax as 100% of profits and gains is allowable as a deduction for 10 consecutive years, which the company had availed from FY09.

Of the total amount spent of Rs.6,250 crores till 28th February 10, Rs.4,200 crores was raised from banks while Rs.1,900 crores came from net worth, being share capital and reserve created on sale of real estate area as stated hereinabove.

The company will be getting about 460 million square feet of saleable area with FAR of 1.5, of which, 250 million sq. feet is in NCR region. So the company will be making all the efforts to sale requisite land area, whereby, it can become debt free after availing benefits of tax free income, under section 80 IA (4) of the Income Tax Act. So in this situation, toll income from expressway can largely get added to the bottomline of the company, as no debt service obligations will be there for the company.

The present equity of the company is at Rs.1,226 crores, which in any case, won’t rise beyond Rs. 1,400 crores, even if we presume issue being made at the lower band, less 10% discount to retail individual shareholders. Assuming the company to become debt free in next couple of years, it will have a market capitalisation / enterprise value of close to Rs.16,000 crores, taking issue price at Rs.117 per share.

All this makes the company an infrastructure player in road, coupled with realty company, having presence in NCR region with title and price of land having obtained on clean and best terms. All future cash flows, from FY12 onwards, can make the company to bid and go for similar other projects in other states or pure road and infrastructure projects.

Considering all this, issue looks quite attractive as the company has 98% paid land for realty, with road project to get completed two years ahead of its schedule with very low gearing and expected debt free status. 5% discount to retail individual bidder is an extra sweetner.

Investment is recommended even at the upper band of Rs.117 per share, wherein, effective cost per share will be Rs.111.15 only.

Satluj Jal Vidyut Nigam Ltd. (SJVNL): Go for POWER

SJVN Ltd. is entering the capital market on 29th April 10 to 3rd May 2010, with a public issue of 41.50 crore equity shares of Rs.10 each, in the band of Rs.23 to Rs.26 per share. A discount of 5% will be given to the Retail category and this is an offer for sale by the Government of India.

The company is presently operating a 1,500 MW hydroelectric power project at the Nathpa Jhakri Hydro Power Station (NJHPS) situated on river Sutlej, in the state of Himachal Pradesh. The company is currently constructing a 412 MW hydroelectric power generation facility, known as Rampur Project, located downstream from NJHPS and will be commissioned in 2013. The company intends to finance this project with internal accruals only and hence, equity of the company will remain same at Rs.4,137 crores.

Though the company has many other hydro power projects in pipeline, like 825 MW in Himachal Pradesh with 51% interest, 363 MW in Uttarakhand, 1,500 MW in Manipur in JV with NHPC and 900 MW on BOOT basis in Nepal, but the same are not considered, as they are either at an early and elementary stage or no financial closure of them have taken place.

The company can well be compared with NHPC, which has 5,175 MW hydropower generation capacity, with 13 projects, located in 5 states. Though capacity of NHPC is about 3.50 times of SJVN Ltd., but the topline and bottomline of NHPC is not commensurate with its capacity, due to power plants being in operation for the last over 15-18 years, with low power tariff. For FY09, NHPC had a total income of Rs.4,050 crores with PAT at Rs.1,245 crores, giving an EPS of Re.1.10, on equity base of Rs.11,182 crores, with book value at Rs.16.45, as at 31st March 09. As against this, SJVN had total income of Rs.1,635 crores with PAT at Rs.759 crores, resulting in an EPS of Rs.1.85, with book value at Rs.16.45 as at 31st March 09.

Despite better financials of SJVN, price band has been kept reasonable at Rs.23-Rs.26 per share, and on top of it, a 5% discount is being offered to retail category. It seems that the government has realised its mistake of aggressive pricing of NHPC. Even if we take the upper band of Rs.26, share is issued at a PBV of 1.40 times, based on expected book value of Rs.18.50, as on 31st March 10. Issue price of Rs. 26 per share is giving as PE multiple of 10 times on expected EPS of Rs.2.60 for FY10. Enterprise value of the company is likely to be at Rs.13,000 crores, which translates into EV per MW of around Rs.6.80 crores, on expanded capacity of 1,912 MW or at Rs.8.70 crores, on present capacity of 1,500 MW, which looks quite reasonable.

Considering all this, issue is recommended for investment even at the upper price band of Rs.26 per share, as it can list at around Rs.30. Effective cost per share, to retail investor will be Rs.24.70 per share, at the upper band.