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Our Take:

Satluj Jal Vidyut Nigam Limited or popularly known as SJVN Limited is primarily engaged in the business of generation and sale of power. The company is a Mini Ratna, a joint venture of the Government of India (GOI) and the Government of Himachal Pradesh (GOHP). GoI holds a majority equity stake of 59.92% in SJVN while the Government of Himachal Pradesh (GoHP) has a 26.85% stake. The company plays a key role in achieving the central government's objective of optimally tapping the hydropower potential in the northern region as well as cross border hydropower development. Furthermore, it is under the administrative control of the Ministry of Power, the nominee of which is on SJVN's board

The Mini Ratna status gives it greater operational autonomy and discretion to set up projects up to Rs 500cr without the express consent of the government. Also, GoI's majority ownership provides access to need-based or viability gap funding support. Beginning with a single project and single State operation (i.e. India’s largest 1500 MW Nathpa Jhakri Hydro Power Station in Himachal Pradesh), the company has commissioned seven projects totaling 2016.51 MW of installed capacity and 86 km 400 KV Transmission Line.

The Himachal Pradesh Government agreed to provide concessions like deferment of free power, reimbursement of 50% of state GST and booking of 1.5% LADF to any head other than project cost, BOOT/ BOOM for 70 years etc., with an objective to bring down hydro tariff to around Rs 4.5 per unit. 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.

It is implementing power projects in Himachal Pradesh, Uttarakhand, Bihar, Gujarat, Rajasthan and Arunachal Pradesh in India besides neighboring countries, which include Nepal and Bhutan. As regards to hydro potential, India has an estimated potential of about 1,50,000 MW out of which only about 45699 MW (as on 31.03.2020) has been commissioned. The bulk of the unharnessed potential is located in the hill states of Himachal, Uttarakhand, Arunachal Pradesh, J&K and Sikkim.

View & Recommendation :

SJVN has achieved the highest ever cumulative generation of 9678 Million Units during FY20 against the MoU Target of 9100 Million Units, beating its own past record of generating 9346 Million Units. Despite the pandemic, the financial position and performance of the company has been exemplary. However, SJVN may face indirect impact from overall economic slowdown to the world economy by COVID19 pandemic.

Various government policies and the very recent union budgetary announcements heavily back the power sector. In the current status of affairs, state owned or debt ridden DISCOMS are a source of long-term worry for the power sector. However, SJVN managed to improve its receivables, where it recovered about Rs 300cr from J&K in the last two months out of Rs 600cr, and the rest is expected to be received shortly. Several steps taken to reform and strengthen the power sector including power generation and transmission & distribution, augurs well for the company. Cost plus tariff structure is going to support SJVN in generating healthy generation in plants. During FY20, the company has become the first PSU in the country to achieve Level-3 of People Capability Maturity Model (PCMM) Integration.

We think that investors could buy the stock at Rs. 24.5 (6.6xFY22E EPS and 0.8xFY22E BV) and add at Rs. 22.0 (5.9xFY22E EPS and 0.7xFY22E BV) for base case target of Rs. 27.0 (7.3xFY22E EPS and 0.8xFY22E BV) and bull case target of Rs. 28.5 (7.7xFY22E EPS and 0.9xFY22E BV) over 2 quarters.

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