Equity Research: SJVN

Summary

The main activities of Satluj Jal Vidyut Nigam Limited also referred to as SJVN Limited, are the production and sale of electricity. The business is a Mini Ratna and a joint venture between the governments of Himachal Pradesh and India (GOHP). The Government of India (GoI) owns a 59.92% equity ownership in SJVN, while the Government of Himachal Pradesh (GoHP) owns a 26.85% stake.

ABOUT:

• SJVN is primarily a hydropower generation firm that has diversified into thermal, solar, wind, and other alternative energy projects as well as electricity transmission. SJVN Green Energy Limited (SGEL), a wholly owned subsidiary, was established to expand the group's portfolio of renewable energy sources and develop new business ventures in the areas of solar parks, biomass, small hydro, hybrid energy, green hydrogen, and battery energy storage systems (BESS).

• It runs the 412 MW Rampur Hydro Power Station in Kullu District, Himachal Pradesh, India, as well as the 1500 MW Nathpa Jhakri Hydro Power Station in Shimla District, India. NJHPS's tailrace extension, known as RHPS, functions in tandem with the generation flow of the main system. The NJHPS and RHPS units were synchronized one by one, and on 18.05.2004 and 16.12.2014, respectively, the projects were certified COD. The NJHPS and RHPS are intended to produce 6612 MU and 1878.08 MU of annual electrical energy in a 90% dependable year with 95% machine availability, respectively. Additionally, the projects are designed to provide Northern Grid with peak electricity.

• In addition, the company manages an 86-kilometer-long cross-border transmission line with a capacity of 400 kV from Muzaffarpur to Sursand, the 47.6-MW Khirvire Wind Power Plant in Nashik District, Maharashtra, and the 5-MW Charnakha Solar Power Plant in Patan District, Gujarat. Furthermore, it provides consultancy services to several businesses in the sectors of hydropower, road/railway tunnels, and so on, as well as from project inception through hydroelectric project commissioning.

• With only 46 GW operational out of an estimated 145 GW potential, India has a significant amount of untapped hydro potential. Due to the variable availability of solar and wind to generate electricity, hydropower assumes more relevance to offer stability to the electric grid in light of the government's ambition to achieve 500 GW of installed electricity capacity from non-fossil sources by 2030. The enterprise is essential to the central government's goal of developing cross-border hydropower while also increasing bilateral ties and fully using the northern region's hydroelectric potential.

SHAREHOLDING PATTERN:

The main activities of Satluj Jal Vidyut Nigam Limited also referred to as SJVN Limited, are the production and sale of electricity. The business is a Mini Ratna and a joint venture between the governments of Himachal Pradesh and India (GOHP). The Government of India (GoI) owns a 59.92% equity ownership in SJVN, while the Government of Himachal Pradesh (GoHP) owns a 26.85% stake.

 FINANCIALS:

Q1FY23:

According to the review petition submitted with CERC for the period 2014–19, SJVN recorded revenue from activities of Rs. 1,004 cr (increased 51.6%/210.8% YoY/QoQ), of which Rs. 288 cr relates to arrears of Rampur HPS. From 2436 MUs in Q1FY22 to 2736 MUs this quarter, a generation grew by 12%. In NJHPS and RHPS, the PAF also increased, and machines were made accessible to the tune of 110.11% and 110.2%, respectively. The capacity incentives and unscheduled interchange (UI), or deviation settlement incentives, increased, as a result, rising from Rs. 71.5 cr in Q1FY22 to Rs. 87.59 cr in Q1FY23. PBT also rose, rising from Rs. 425 crores in the first quarter of last year to Rs. 650 crores in Q1FY23, by 53%. PAT of Rs. 607 cr., up 79% YoY, was reported by SJVN.

KEY FACTORS:

Comfortable liquidity position

The company had Rs. 2902 Cr in cash and cash equivalents as of March 31, 2022. Strong operating cash flow, unused bank lines, and short-term loans would satisfy debt payments, capital expenditure requirements, and dividend payments. To fund the equity share of the following projects, the business is also in the process of monetizing a portion of its NJHPS cashflows and raising Rs. 2000 Cr.. Regular receivables (excluding unbilled revenue and bills discounted) as on March 31, 2022, reduced to Rs 574 crore (equivalent to 87 days) compared to Rs 853 crore a year earlier (equivalent to 127 days), due to receipt of the Aatmanirbhar Bharat package and timely collections of current dues.

Upcoming capacity to lead to higher earnings

By FY25E, 3415 MW of additional capacity—an increase of over 160% from the existing capacity—will be added, greatly boosting revenue. The Buxar Thermal Power Plant in Bihar and the Arun-3 HEP in Nepal are important projects.

Policy measures by the government to promote the hydropower sector augur well for the company

Several measures to improve the hydropower business have been approved by the government. These include: Designating large hydropower (LHPs) (projects larger than 25 MW) as a renewable energy source; requiring hydro purchase obligations (HPOs) from new projects as a separate entity within non-solar renewable purchase obligations (RPOs); giving development  flexibility to backload tariffs by extending project life to 40 years, and extending the time for debt repayment to 18 years.

Cost-Plus Return on Equity model to ensure stable returns

The operational hydroelectric plants have regulated tariff structures that allow for the recovery of all costs, including a set return on equity based on approved capital cost, provided that the normative standards specified by the Central Electricity Regulatory Commission (CERC) for each plant are met.

KEY CONCERNS

• Because there are multiple projects in the pipeline, the company has allocated a big CAPEX; nonetheless, the corporation is concerned about execution. Significant time or cost overruns in under-construction projects may reduce their cost competitiveness.
•  Project completion in Nepal and Bhutan poses geopolitical hazards. Other obstacles to project progress include decision-making delays, variations in local population employment, government engagement, and financial concerns.
• The majority of hydroelectric projects are situated in rural areas, making them susceptible to landslides and cloud bursts, among other natural disasters. Furthermore, the projects can be delayed by erratic rain and flash floods. Despite extensive surveys and investigations, geological surprises that provide technological challenges could impede work and drive up expenses.
• In the medium term, it is anticipated that the amended Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 will reduce the risks of payment delays caused by weak financial health and receivables
• Newer hydro projects are becoming less desirable as a result of rising costs and dropping solar and wind prices. Hydropower, however, might come with a small premium because of the grid dependability it provides. Hydropower generation could become unprofitable due to large-scale, affordable battery storage.

VALUATION:

SJVN has developed from a single state operation with a single project (the 1500 MW Nathpa Jhakri Hydro Power Station in Himachal Pradesh) into a diversified power generation company with eight projects that total 2091.5 MW of installed capacity and an 86 km 400 KV transmission line. By 2023, 25000 MW will be installed, followed by 50000 MW by 2040, according to the management's goal. The new capacity's full effects will become apparent in FY25, which will result in a large rise in revenue and profitability.  The company trades at a competitive 4.8% dividend yield. As earnings rise in the upcoming years, dividend growth is anticipated. Over FY22–24E, we anticipate a CAGR of 29.3%, 28.0%, and 24.2% for revenue, EBITDA, and profit. It is a desirable investment opportunity because of the potential for capacity increase, the regulated business model, the consistency of operational performance, and the favorable valuations.

SOURCE: COMPANY WEBSITE & STOCX