Price band Rs23-26

The IPO of Satluj Jal Vidyut Nigam Ltd., a Schedule-A Mini Ratna Category-I PSU, opens today. Through the issue, priced at Rs23-26/share, the government will divest 10% stake in the company. SJVN currently has 1,500MW of operational capacity. It plans to expand its installed capacity by 3.7x to 5,500MW over the next decade. However there is clarity on only one project, 412MW Rampur project, which is scheduled to commission by 2013. Steady cash flow generation should allow the company to fund its equity contribution towards the capex. Although no capacity is being added over the next two years (hence muted earnings growth) key triggers for FY11 earnings are 1) migration to the new CERC norms, 2) incentive income and 3) higher interest income – on account of high cash generation. Also, the company has superior RoE as compared to its listed peer, NHPC and offers 3% dividend yield. This coupled with the offer being priced at 1.2x (at the lower band) FY11E book, makes the issue attractive. Recommend Subscribe.