Miniratna Central Public Sector Enterprise gets a ‘Buy’ tag on it from Monarch Networth Capital Limited, one of the well-known Financial Firms, with an upside potential of 33 percent from its current market price of Rs. 94.10.
SJVN Limited
SJVN Limited is engaged in the business of generation, transmission, and consultancy of renewable energy sources like hydro energy, wind energy, solar energy, and thermal energy.
With a market capitalization of Rs. 37,058 Crores, On December 14, 2023, the shares of SJVN Limited were trading at Rs. 94.10, up 1.67 percent from its previous day’s close price of Rs. 92.55. It has delivered multi-bagger returns of 143 percent in a year and 144 percent in the last six months.
The company’s revenue from operations grew 21.57 percent from Rs. 2,417 Crores in FY22 to Rs. 2,938.35 Crores in FY23, accompanied by increasing profits of Rs. 989.8 Crores to Rs. 1,359.3 Crores.
Monarch Networth Capital, one of the well-known Financial Firms, has given a ‘Buy’ tag to the company’s stock with a target price of Rs. 125 indicating a potential upside of 33 percent as compared to the current market price of Rs. 94.10.
The rationale behind providing such a recommendation pertains to various trigger points Comprising,
Ambitious capacity expansion plan
From the current installed capacity of 2.1GW, mostly hydropower, SJVN aims to achieve a capacity of 12GW by 2026, 25GW by 2030, and 50GW by 2040, by investing in renewables, including hydro, and one coal-based thermal power project.
Preparations are already made towards that objective. On estimates, SJVN will achieve a capacity mix of 38 percent from hydro, 46 percent from other renewables, and 16 percent from thermal and unit generation mix of 52 percent, 16 percent, and 32 percent respectively as above assuming an installed capacity of 8.3 GW by FY26.
Strong fundamentals backed by a history of efficient operations
Even though NHPC is the largest listed hydropower producer in India with a capacity of 7GW, SJVN has a higher average plant load factor (PLF) of 54 percent compared to NHPC’s 46 percent and India’s average of 39 percent.
Its plant availability factor (PAF) has also been consistently above 100 percent compared to the normative requirement of 85-90 percent set by the electricity regulator. As a result, SJVN has enjoyed superior profitability over the years, with an average ROE of 12.5 percent over 2014-2022, compared with NHPC’s 9.4 percent over the same period.
Supported by favorable sector dynamics and GoI initiatives for renewables
India’s per capita energy consumption of 1,297 kWh per annum is ~1/3rd of the global average and has grown at a 7-year CAGR of 2.2 percent over FY16-22, which is less than half of the Government of India estimated a 4.8 percent increase in peak power demand CAGR over 2023-30. As a result, the GoI has set a target of achieving 500GW of renewable energy capacity, including hydro, by 2030 from 172GW currently, implying a CAGR of 16 percent.
While the focus is more on renewable power, the government has also indicated a need for an additional 80 GW of coal-based capacity by 2030 to meet peak power demand needs. While no subsidies are offered for setting up a power plant, GoI has mandated state discounts to increase the purchase of renewable power.
Potential upside of 2-3x when taking a longer-term view
If the company achieves its guided 25 GW capacity by FY30, the model of Monarch Networth Capital indicates an upside potential of 2-3x by FY30, implying a CAGR return of 18-22 percent over 2023-2030
On a 2-year forward basis, the model indicates a risk-reward of 1:2. With a base target price(TP) based on EV-to-capacity, for FY26 is Rs. 125, while the broker’s bull-case and bear-case TP is Rs. 166 and Rs. 61, respectively.
The estimates for FY26 imply a forward P/E of 11.4x, EV/EBITDA of 10.1x, and EV-to-capacity of 976 thd USD per MW. The key risks are excessive underachieving of guided capacity, delay in entering into power purchase agreements, and worsening of receivables.
Written by: Bharath K.S
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