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Orient Green Power Company Ltd (OGP) is a leading independent renewable energy-based power generation company focused on developing, owning and operating a diversified portfolio of power plants. Their current portfolio comprises of Biomass, Biogas and Wind Energy. OGP is a 94.75% (post issue 56%-59.5%) subsidiary of Singapore-based Orient Green Power Pte. Shriram EPC Ltd holds a 37.5% stake in this parent company, with the rest being held by two private equity investors. Through the IPO, OGP plans to raise Rs9bn, which will be used to fund capacity expansion and repayment of debt.
Improved business sentiment in Renewable Energy to benefit leading developers
OGP is the second largest independent power producer (IPP) in India involved in wind energy with a market share of 8.7%. It currently has 213MW of gross installed capacity, of which 173MW is from wind and 41MW is from biomass. Assets currently under operation have been acquired from third parties. Going forward, the company will continue to enhance its capacities through organic as well as inorganic routes.
Rapid capacity addition to propel revenue growth
OGP has ambitious plans to reach 1,000MW capacity by FY13. 75% of the capacity would be accounted by the wind energy segment, while the remaining would come from biomass and other sources. However, in terms of revenue contribution, 45% would come from biomass owing to higher efficiency factors. The high rate of capacity addition, coupled with higher tariffs form SEBs and Merchant Power sales would boost income growth.
Valuation and outlook
At the lower end of the price band, OGP is valued at 1.6x P/BV (post issue), and 1.8x P/BV at the upper end of the price band. With rising environmental concerns (greenhouse effect) and surging crude oil prices, sources of renewable energy will continue to attract investor attention over the longer term. We believe OGP provides a good investment opportunity for long term investors considering its strong capacity ramp-up plans over the next couple of years, translating into robust earnings profile. We recommend investors to subscribe to the issue.
Valuation summary
| Y/e 31 Mar (Rs m) |
FY08 |
FY09 |
FY10 |
| Revenues |
0 |
121 |
562 |
| YoY growth (%) |
- |
- |
364.0 |
| Operating profit |
(12) |
(45) |
7 |
| OPM (%) |
|
(37.5) |
1.2 |
| Reported PAT |
(12) |
(80) |
(122) |
| YoY growth (%) |
|
581.3 |
54.0 |
| |
|
|
|
| EPS (Rs) |
(0.8) |
(2.0) |
(0.4) |
| P/E (x)* |
(72.1) |
(28.0) |
(124.3) |
| Price/Book (x)* |
1.1 |
1.1 |
4.1 |
| EV/EBITDA (x)* |
(60.7) |
(57.3) |
2,813.0 |
| Debt/Equity (x) |
0.1 |
0.3 |
1.1 |
| RoE (%) |
(3.1) |
(5.8) |
(4.3) |
| RoCE (%) |
(2.7) |
(3.5) |
(0.2) | Source: Company, India Infoline Research * Computed on higher price band of Rs55
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