I think what is happening now is that people are getting concerned since the indices are reaching new highs. So, this one is for those, probably who are sitting on cash and who want capital protection, they do not want to take too much risk in the market, but still want to invest in the market. This is a stock for that kind of a profile kind of investors. This is an undervalued company when you compare it with the peer group. This is a company which operates the Naphtha Jhakri project with a capacity of 1,500 megawatts. Besides this, the company has about 4,000 megawatt, which is coming up, in various places and at various stages.
The first one to go on stream would be the Rampur project which is about 400 megawatt project. This company also has a 900 megawatt project in Nepal and 1,400 megawatt project in Bhutan. So, all this projects will start operations in the next six-seven years. I think in 2013 Rampur will start operations and they have projects lined up to 2020. The gestation period for these projects is high, but the beauty of hydro power is that once you have put the project there are hardly any recurring costs in the projects and your operating profit margin maybe as high as 90%.
The reason I am saying that this company is undervalued is because if you compare this company with NHPC, NHPC did revenues of roughly Rs 4,200 crore in FY10 and made a profit of about Rs 2,100 crore, SJVN did revenues of about Rs 1,750 crore and profit after tax of about Rs 980 crore. First quarter NHPC did Rs 1,020 crore and PAT of Rs 537 crore. SJVN did about Rs 525 crore with a PAT of about Rs 290 crore. If you see on the operational front, this company maybe about 50% in terms of revenues and profitability when compared with the NHPC. However, the market cap of SJVN is just about Rs 10,000 crore as against Rs 40,000 crore for NHPC. When I talk to people in the market, they tell me that NHPC is undervalued. So, if NHPC is undervalued, I think SJVN at the current price of about Rs 24-24.50 gives you a good margin of safety.
Another thing is that if you see the price pattern movement of SJVN for the past six months, this is a stock which has not fallen below Rs 23. So, at the current price of Rs 24-24.50, when the indices have reached their all time high, I think the maximum one can lose from these levels is maybe 5-10%, whereas potential gain could be about 25-30% over a period of five-six months.
I think the short-term trigger for the stock could be that in the Northern part of the country the rainfall has been very good and good rainfalls augurs well for companies which are involved in hydro projects because they get more water to product electricity. That could be the point which can trigger a re-rating in almost all hydro power projects be it a NHPC, or SJVN or Jaiprakash Hydro because these companies have been consolidating for a very long time. So, I think SJVN looks to be on fundamentals the cheapest amongst the lot. I don't think people will lose too much from a level of about Rs 24-24.50 at the current levels.
Source: Internet (Moneycontrol.com by Ashish Chug)
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