COMPANY UPDATE

04 MAR 2014

Jaiprakash Power Ventures

BUY
INDUSTRY CMP (as on 03 Mar 2014) Target Price
Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn) / ($ mn) 6m avg traded value (Rs mn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others
Source : BSE

POWER Rs 14 Rs 28
6,221 20,947 JPVL IN/JAPR.BO 2,938 41 / 663 110 Rs 30 / 9 6M 7.7 (5.1) 12M (49.7) (60.7) 64.96 8.05 7.15 19.84

Cash raised, all eyes on execution

JPVL has announced sale of its Karcham Wangtoo and Baspa power plants to a TAQA led consortium for a total EV of Rs 101bn, including an equity consideration of Rs 38.2bn. Deal value implies 1.5x on invested equity and we est. Rs 36bn post tax inflow to JPVL. Valuation was in line with our estimates. Cash inflow from this sale will alleviate funding issues faced by JPVL. We estimate funding requirement of Rs 50bn over FY15-16E which can be met through internal accruals, cash inflow from this deal and securitization proceeds. With funding concerns resolved, progress on operational and under construction thermal projects will drive the stock price. Final tariff approval for Bina and timely commissioning of Nigrie are key triggers. Retain BUY with a revised SOTP of Rs 28/sh. Key details of the deal
TAQA (Abu Dhabi National Energy Co) holds 51% in the buyers consortium. Canadas PIB pension fund holds 39% and an IDFC Alternatives fund holds 10%. The consortium will take over Rs 63bn of debt, (including Rs 14bn debt, securitized by Karcham Wangtoo cash flows). Equity consideration will be Rs 38.2bn and post tax inflow to JPVL will be Rs 36bn. The sale will be effective Nov-14, subject to regulatory approvals. JPVL will keep the profits earned until Nov14 by the assets being disposed.

Impact on balance sheet, cash flow and valuation JPVL requires Rs 50bn to meet its debt repayment and

equity commitments over FY15-16. Proceeds from this sale along with internal accruals will help the company to meet these commitments. Overall debt/equity will come down significantly to 2.1x (ex-treasury stock) from earlier estimated 4.4x in FY15E. JPVL now has 900 MW (operational) and 3,300 MW under-construction capacity (3.8GW coal based). Progress on tariff finalization for Bina and profitable operation of Nigrie will be key monitorables. We believe that even in a stress case scenario of continued under recovery of fixed costs at Bina and only 80% fixed cost recovery at Nigrie, the co. will be able to meet its debt and equity obligations. We adjust our earnings and valuation to factor in the asset sale and retain BUY with a revised SOTP of Rs 28/sh (from Rs 26/sh).
FY12 16,156 14,818 4,013 1.53 9.16 0.67 7.55 FY13 24,586 19,327 3,513 1.20 11.71 0.64 5.89 FY14E 27,208 20,729 2,484 0.85 16.56 0.63 3.81 FY15E 50,853 36,094 9,658 3.29 4.26 0.45 12.26 FY16E 64,681 38,303 9,240 3.15 4.45 0.41 9.65

(29.1) (30.3)

SHAREHOLDING PATTERN (%)

FINANCIAL SUMMARY
(Rs mn) Net Sales EBITDA APAT Diluted EPS (Rs) P/E(x) P/B (x) ROE (%)

Abhinav Sharma abhinav.sharma@hdfcsec.com +91-22-6171-7331

Source : Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

JAIPRAKASH POWER VENTURES : COMPANY UPDATE

PROJECT SUMMARY

JPVL is now predominantly a thermal power play with 3,800MW thermal capacity either operational or under implementation

Total cost (Rs mn) Vishnuprayag (400MW)

Equity Status investment (Rs mn) 5,040 Operational

Fuel sourcing Hydel

Capacity tie ups Regulated, earning c. 23% ROE, PPA with UP

Key issues/developments Plant has been shut due to Uttaranchal floods but the management expects it to come on stream in 1QFY15 1) Under recovery of fixed costs as final tariff approval is yet to come 2) Merchant sales are difficult as linkage coal is not available leading to high cost of production 1) Coal production from Amelia has started 2) High fixed cost of Rs 100bn, 75mn/MW may lead to difficulties in final tariff approval

Bina phase 1 (500MW, 2X250)

32,000

9,600

Operational

1) Coal - Linkage from CCL and SECL 2) E auction

1) 65% of capacity to MP on CERC based norms 2) 5% of capacity to MP at variable cost. 3) 30% merchant

Nigrie (1,320 MW, 2X660)

100,000

30,096

Commissioning Captive coal by FY15 Amelia N and Dongri Tal 2

Bara (1,980MW 3X660)

100,800

25,224

1) 30% of capacity to MP on CERC based norms 2) 7.5% of capacity to MP at variable cost. 3)12.5% of capacity with Jaypee associates 4) 50% of capacity merchant Commissioning Coal Linkage from 1) 90% of capacity with MP at a in FY16-17 CIL levelised tariff of Rs 3.02/unit with fuel pass through 2) 10% of capacity merchant

1) Slow execution but we expect execution to pick up as funding concerns have eased 2) Possibilities of cost overrun

Source : Company, HDFC sec Inst Research

Page | 2

JAIPRAKASH POWER VENTURES : COMPANY UPDATE FUNDING REQUIREMENTS : DUE TO CORPORATE DEBT REPAYMENT AND EQUITY COMMITMENTS
Rs mn Commitments ICICI Bank corporate debt NCD series II from ICICI Bank FCCB (due in Feb-15) Other corporate loans Equity to be invested in Bara and Nigrie Total cash outflow Cash inflow from sale of Karcham and Baspa Cash inflow from cash flow securitsation of Karcham Wangtoo Cash flow from operating projects (base case) Cash flow from operating projects (stress case) Total cash inflow (base case) Total cash inflow (stress case)
Source : Company, HDFC sec Inst Research

The company should be able to finance its funding commitments, even in our stress case scenario where we have assumed continued fixed cost under recovery in Bina and 80% fixed cost recovery in Nigrie

FY15E 2,556 7,970 13,470 2,500 15,000 41,995 36,000 5,000 13,818 10,095 54,818 51,095

FY16E

2,557 2,500 3,000 8,057

8,051 4,014 8,051 4,014

VALUATION SUMMARY (BASE CASE)

We have valued both Bina and Nigrie projects as regulated projects with no merchant sales

Projects Vishnuprayag Bina phase 1 Nigrie Bara Jaypee powergrid Unallocated Net Debt/Cash Target price

Capacity (MW) 400 500 1,320 1,980

Value (Rs mn) 8,924 10,317 35,141 12,104 2,854 2,811

Value per share 3.4 4.0 13.5 4.7 1.1 1.1 27.8

Implied P/B 1.8 1.1 1.2 0.5 1.3

Source: Company, HDFC sec Inst Research DCF at Cost of equity 14%

Stock price is below our stress case valuation of Rs 19/sh Timely execution of Nigrie and its profitable operation will be the key triggers for the stock

VALUATION SUMMARY (STRESS CASE)

Projects Vishnuprayag Bina phase 1 Nigrie Bara Jaypee Powergrid Unallocated Net Debt/Cash Target price Capacity (MW) 400 500 1,320 1,980 Value (Rs mn) 8,924 6,633 12,993 12,104 2,854 2,811 Value per share 3.4 3.4 5.0 4.7 1.1 1.1 18.7 Implied P/B 1.8 0.7 0.4 0.5 1.3

Source: Company, HDFC sec Inst Research DCF at Cost of equity 14%

Page | 3

JAIPRAKASH POWER VENTURES : COMPANY UPDATE PEER VALUATION

Company NTPC Power Grid Tata Power Reliance Power JSW Energy CESC Jaiprakash Power TP (Rs) 121 112 90 84 55 508 28 CMP Rating (Rs) 112 95 80 61 49 479 14 NEU BUY NEU BUY BUY BUY BUY Market Cap Rs bn 919 438 190 171 80 60 37 US$bn 14.6 6.9 3.0 2.7 1.3 0.9 0.6 FY14E 9.4 11.3 12.0 17.2 6.4 9.6 16.6 P/E (x) FY15E 10.3 9.7 11.4 16.5 7.3 9.1 4.3 FY16E 9.5 8.1 10.8 18.9 7.1 8.3 4.5 FY14E 1.1 1.4 1.5 0.9 1.1 0.9 0.6 P/B (x) FY15E 1.0 1.3 1.4 0.8 1.0 0.8 0.4 FY16E 1.0 1.2 1.3 0.8 0.9 0.8 0.4 FY14E 11.8 13.7 13.3 5.2 18.7 9.3 3.8 ROE (%) FY15E 10.1 14.2 12.7 5.1 14.5 9.2 12.3 FY16E 10.4 15.3 12.2 4.3 13.5 9.4 9.7

Source: HDFC sec Inst Research

Page | 4

JAIPRAKASH POWER VENTURES : COMPANY UPDATE

INCOME STATEMENT
(Rs mn) Revenue Growth % Fuel costs Employee expenditure Other expenses EBITDA EBITDA % EBITDA Growth % Other Income Depreciation EBIT Interest PBT Tax APAT Minority interest APAT after minority interest APAT growth % EPS EPS growth %
Source: Company, HDFC sec Inst Research

BALANCE SHEET
FY12 16,156 119 0 433 905 14,818 92 126 707 2,312 13,213 8,595 4,619 608 4,010 3 4,013 132 1.5 132 FY13 24,586 52 1,881 600 2,779 19,327 79 30 384 3,765 15,946 11,868 4,078 501 3,577 (64) 3,513 (12) 1.2 (22) FY14E 27,208 11 2,599 901 2,979 20,729 76 7 384 4,761 16,352 12,247 4,106 1,504 2,602 (118) 2,484 (29) 0.8 (29) FY15E 50,853 87 9,434 1,351 3,974 36,094 71 74 384 8,038 28,441 15,465 12,976 3,200 9,776 (118) 9,658 289 3.3 289 FY16E 64,681 27 19,872 2,026 4,480 38,303 59 6 384 9,781 28,905 16,610 12,296 2,802 9,493 (253) 9,240 (4) 3.1 (4) (Rs mn) SOURCES OF FUNDS Share Capital Reserves TOTAL SHAREHOLDERS FUNDS Minority Interest Deferred Revenue Long Term Debt Short Term Debt TOTAL DEBT Deferred Taxes Long Term Provisions TOTAL SOURCES OF FUNDS APPLICATION OF FUNDS Gross Block Net Block CWIP Investments LT Loans & Advances CURRENT ASSETS Inventories Trade receivables Cash & equivalents ST Loans & Advances Other Current Assets TOTAL CURRENT ASSETS CURRENT LIABILITIES Trade Payables Other Current Liabilities Provisions TOTAL CURRENT LIABILITIES NET CURRENT ASSETS TOTAL APPLICATION OF FUNDS 12,046 795 3,656 16,497 3,695 238,566 16,908 6,857 1,788 25,552 (2,753) 305,876 16,908 6,857 1,788 25,552 3,078 317,469 18,599 6,857 1,788 27,243 28,376 294,342 20,458 6,857 1,788 29,103 23,125 291,972 490 4,304 9,193 4,828 1,378 20,192 1,366 5,227 9,002 6,297 906 22,799 1,849 3,146 16,473 6,297 865 28,630 3,432 11,695 33,366 6,297 827 55,618 6,699 19,536 18,902 6,297 793 52,227 106,850 98,600 95,653 19,859 20,758 135,464 123,411 151,236 19,859 14,122 194,220 177,406 104,258 19,859 12,868 158,880 144,461 89,925 19,859 11,721 194,850 170,650 68,343 19,859 9,994 26,248 28,340 54,588 759 3,921 174,488 5 174,493 1,242 3,563 238,566 29,380 35,222 64,602 1,844 4,872 225,948 2,401 228,349 1,743 4,466 305,876 29,380 36,334 65,714 2,724 5,945 234,478 2,401 236,878 1,743 4,466 317,469 29,380 62,509 91,889 3,721 7,182 182,494 2,401 184,895 1,743 4,912 294,343 29,380 70,216 99,596 4,701 7,618 170,511 2,401 172,912 1,743 5,403 291,973 FY12 FY13 FY14E FY15E FY16E

Source: Company, HDFC sec Inst Research

Page | 5

JAIPRAKASH POWER VENTURES : COMPANY UPDATE

CASH FLOW
(Rs mn) PAT from operations Finance costs Depreciation Working capital change Others OPERATING CASH FLOW Capex Free Cash Flow to firm(FCFF) Investments & Others INVESTING CASH FLOW Capital issuance Debt issuance Interest Free Cash Flow to equity (FCFE) Dividend Sale of treasury shares FINANCING CASH FLOW NET CASH FLOW Closing cash FY12 4,013 8,595 2,312 376 (218) 15,078 (61,211) (46,133) 719 (60,493) 0 40,717 (8,501) (13,198) 0 0 32,325 (13,089) 9,193 FY13 3,513 12,126 3,765 13,706 114 33,223 (84,158) (50,935) 603 (83,555) 10,308 51,927 (12,093) (10,498) 0 0 50,142 (190) 9,002 FY14E 2,484 12,247 4,761 2,895 1,191 23,578 (11,778) 11,800 0 (11,778) 0 7,157 (12,247) 6,710 0 0 (4,329) 7,472 16,473 FY15E 9,658 15,465 8,038 (6,811) 23,356 49,705 39,240 88,945 0 39,240 879 (57,466) (15,465) 16,014 0 0 (72,052) 16,893 33,366 FY16E 9,240 16,610 9,781 (6,995) 689 29,325 (14,389) 14,936 0 (14,389) 727 (13,518) (16,610) (15,191) 0 0 (29,400) (14,464) 18,902

KEY RATIOS
FY12 PROFITABILITY % EBITDA margin EBIT margin APAT margin RoE RoE (ex Treasury) RoIC RoCE EFFICIENCY Tax rate % Inventory (days) Debtor (days) Payables (days) Cash conversion cycle (days) Debt/EBITDA (x) Net D/E Net D/E (ex Treasury) Interest coverage VALUATION EPS (Rs/sh) DPS (Rs/sh) BV (Rs/sh) P/E P/BV P/BV (ex Treasury) EV/EBITDA EV/Revenues OCF/EV (%) FCF/EV (%) Dividend yield (%)
Source: Company, HDFC sec Inst Research

FY13 78.61 64.86 14.29 5.89 8.84 4.29 3.92 12.28 107.02 77.60 251.01 (66.38) 11.82 3.40 4.90 1.63 1.20 0.00 21.99 11.71 0.64 0.92 13.48 10.59 12.75 (19.55) 0.00

FY14E 76.19 60.10 9.13 3.81 5.48 3.83 3.52 36.62 120.97 42.20 226.82 (63.65) 11.43 3.35 4.81 1.69 0.85 0.00 22.37 16.56 0.63 0.90 12.62 9.61 9.02 4.51 0.00

FY15E 70.98 55.93 18.99 12.26 16.39 7.20 6.23 24.66 93.43 83.94 133.49 43.89 5.12 1.65 2.10 2.33 3.29 0.00 31.28 4.26 0.45 0.57 5.34 3.79 25.80 46.17 0.00

FY16E 59.22 44.69 14.29 9.65 12.18 7.73 6.61 22.79 100.40 110.24 115.45 95.20 4.51 1.55 1.93 2.31 3.15 1.00 33.90 4.45 0.41 0.52 5.09 3.02 15.03 7.65 0.00

91.72 81.79 24.84 7.55 12.06 4.66 4.11 13.17 0.00 97.23 0.00 97.23 11.78 3.03 4.76 1.72 1.53 0.00 20.80 9.16 0.67 1.06 13.64 12.51 7.46 (22.83) 0.00

Source: Company, HDFC sec Inst Research

Page | 6

JAIPRAKASH POWER VENTURES : COMPANY UPDATE

RECOMMENDATION HISTORY
50 40 30 20 10 0 Jaiprakash Power TP

Date 21-Feb-13 29-Apr-13 27-Jun-13 13-Aug-13 4-Feb-14 4-Mar-14

CMP 31 26 19 11 13 14

Reco BUY BUY BUY BUY BUY BUY

Target 38 34 34 27 26 28

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Aug-13

Dec-13

Apr-13

Oct-13

Nov-13

Feb-13

Sep-13

Jan-14

May-13

Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd . Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organisations described in this report.

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com Page | 7

Mar-13

Feb-14

Jun-13

Jul-13