SJVN Ltd:-Buy/sell: multibagger

Scripscan:SJVN Ltd

BSE code:533206

cmp:20

Story: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 inNepaland 1,400 megawatt project inBhutan. So, all this projects will start operations in the next six-seven years.I think in 2013Rampurwill 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 4,225 crore in FY11 and made a profit of about Rs 2,166 crore, SJVN did revenues of about Rs 1,800 crore and profit after tax of about Rs 912 crore.If you see on the operational front, this company maybe about 40% in terms of revenues when compared with the NHPC.However, the market cap of SJVN is just about Rs 8700 crore as against Rs 29000 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 20 gives you a good margin of safety.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 20 at the current levels.

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