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KSK Energy Ventures IPO Analysis
23 June 2008
Source: www.keynoteindia.net
Keynote Capitals set "Subscribe with a long term view" recommendation on KSK Energy Ventures IPO, which opens for subscription on June 23 and closes on June 25.
KSK Energy Ventures IPO details:
Price Band: Rs. 240 - 255 per share
Issue open between: June 23 - June 25, 2008
Book Running Lead Managers: Kotak, IDFC-SSKI, Morgan Stanley, Edelweiss
To List on: NSE and BSE
Market Cap post-listing: Rs. 88.26 billion or $2.05 billion (based on the cap price)
Synopsis
- KSK Energy Ventures Ltd. (KSKEVL) was incorporated in 2001 to develop power projects. The company has a power generating capacity 144MW.
- India is facing a tremendous shortage of power which is 15% at peak period. Even in spite of consistent efforts to improve the situation, lack of presence of the private sector and huge T&D losses, the demand-supply mismatch remains.
- The Electricity Act 2003 liberalized the power sector, allowing private sector players to develop power projects. The Government, in its mission “Power for All by 2012” has stated objectives to provide sufficient, reliable and inexpensive power. It has targeted 78,577MW capacity addition in 11th five year plan period, i.e., 2007-12.
- In the last few years, many private sector players have entered the fray, to develop power plants, e.g., Tata Power, Reliance Power, etc. The sector will attract huge investments going forward, as demand for power is unlikely to come down.
- KSKEVL plans to generate 8,993MW of power by 2013, through a mix of thermal and hydro power projects. While it already generates 144MW of power, a generating capacity of 2,648MW is under construction and development, while 6,345MW is in the planning stage. The company has already ensured fuel supply for most of the projects.
- The company has arranged finance for projects of 2,518MW, while finance for rest 6,475MW projects is yet to be tied up. Further, it is also bidding for 2,320MW power projects in Punjab and Karnataka. We expect a large burden of debt, as well as further equity dilution in the future, in order to fill the gap in funding needs.
- Lehman Brothers affiliate LB India Holdings Mauritius I Ltd. (LB India) took a substantial stake of 31.57% (post-dilution 28.41%) @ Rs34.55 per share, as recently as January 25, 2008. The pricing of the placement is at a fraction of the cap price for the IPO.
- We note a lack of clarity in the company’s policies. This includes reverting from the status of public limited company to private limited company in 2006.
- We also note the lack of transparency in the transaction of acquisition of 513.1mn shares of KSK Electricity Financing India Pvt. Ltd. (KSKEFIL) from LB India, for aggregate consideration of Rs695.75Cr. KSKEFIL, a VC firm, has minuscule revenues. The consideration for the original sale of stake in KSKEFIL to LB India has not been disclosed in the RHP. Investors need clarity on the valuation of KSKEFIL and profit taken by LB India on this particular transaction.
- Interestingly, the balance sheet of KSKEVL, as at March 31, 2008 (as per the RHP) does not tie up, leaving a gap of Rs7.20Cr on the assets side.
- As per our valuation exercise, the IPO is priced at Rs2.5Cr per MW (considering only existing projects and projects under construction / development) which looks expensive vis-?-vis established peers like NTPC which trades at Rs2.1Cr per MW and Tata Power at Rs2.3Cr per MW. Considering the long term execution tenure of the projects (to be completed by 2013), risk of delays, financing risk, interest rate risk and execution risk would remain. We recommend subscribing with a long term view only.
To read more download full version of KSK Energy Ventures IPO Analysis.
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