Decent prospects in the medium and long term
Orient Green Power Limited (OGPL) is tapping the capital markets with an issue which has opened on Tuesday the 21st of September and has closed yesterday the 23rd of September for QIB’s. The issue closes today the 24th of September for HNI’s and Retail investors. The issue has been subscribed at the lower end of the price band of Rs 47 by QIB’s and that would be the price at which the issue would be priced. The subscription by QIB’s was 2.09 times by QIB’s and overall the same was 0.95 times.
| Price Band | Rs 47 – Rs 55 |
| Issue size in Rs | Rs 900 crs |
| Offer size in shares | 19,14,89,362 shares at Rs 47 and 16,26,36,364 shares at Rs 55 |
| QIB’s | 9,57,44,681 Equity Shares at Rs 47 and 8,18,18,182 Equity Shares at Rs 55 |
| Non Institutional Investors | 2,87,23,404 Equity Shares at Rs 47 and 2,45,45,455 Equity Shares at Rs 55 |
| Retail Investors | 6,70,21,277 Equity Shares at Rs 47 and 5,72,72,727 Equity Shares at Rs55 |
| Marketcap post issue | Rs 2199.97 crs to 2421.24 crs |
| Book Running Lead Manager | JM Financial Consultants Private Limited |
| Goldman Sachs (India) Securities Private Limited | |
| UBS Securities India Private Limited | |
| Axis Bank Limited | |
| Isssue Opening Date | Tueday 21st September |
| Isssue Closing date for QIB’s | Thursday 23rd September |
| Isssue Closing date for HNI’s and Retail | Thursday 24th September |
| Anchor Investors | 2,45,45,375 shares alloted at a price of Rs 47 per share |
| IPO Grade | 4/5 by CRISIL Limited indicating above average fundamentals |
| Bidding Lot | 40 shares |
Business
The company OGPL is in the business renewable energy. The company is a leading Indian independent renewable energy-based power Generation Company focused on developing, owning and operating a diversified portfolio of renewable energy power plants. OGPL is the largest independent operator and developer of renewable energy power plants based on aggregate installed capacity according to the CRISIL report dated March 2010. The current portfolio includes an operating capacity of 213.03 MW comprising of 172.53 MW of wind energy and 40.5 MW of biomass projects.
The portfolio of committed and development projects include 836.5 MW of prospective capacity comprising of 643 MW of wind energy, 178.5 MW of biomass projects and a small hydro electric capacity of 15 MW. Once all these projects are commissioned the total capacity would be 1013.3 MW.
The company would be adding these capacities in a phased manner starting from the second half of the current year where 132.5 MW is likely to be added. In 2011-12 the company is likely to add 477 MW and the balance would be completed in 2013 when the total capacity would be a little higher than 1000 MW of renewable energy.
Objects of the issue
The objects of the issue which is for Rs 900 crs is as follows: –
| 1. | Finance the construction and development of four biomass projects being undertaken by the company | Rs 60.76 crs |
| 2. | Funding subsidiary OGP Rajasthan and BWFPL for the construction and development of a biomass and a wind project | Rs 530.20 crs |
| 3. | Funding the Subsidiaries of the company BFWPL, PSR Green and SNEL for repayment of existing debt availed from Indusind Bank and prepayment of existing debt availed from Axis Bank | Rs 110.58 crs |
| 4. | General corporate purposes |
Financials
The company OGPL has reported total revenue of Rs 12.27 crs for the year ended March 2009 and Rs 63.22 crs for the year ended March 2010. The company is yet to make profits and its loss for March 2009 was Rs 7.95 crs, which has increased to Rs 12.24 crs in March 2010.
Competition
There is no comparable in this business as of date except to some extent a company Suryachakra Power which is into biomass power generation. Suryachakra is running a few biomass projects and is also in the business of generating and supplying power from diesel generation in Port Blair. As of date probably Suryachakra is the largest biomass energy producer in the country but many more are entering this field. In wind power there are many entities that have wind farms and are using the same for their own captive consumption or tax break as there are many incentives for wind energy farms.
Opportunity
The opportunity is tremendous and there is no doubt to the future of this business. OGPL will have the first mover advantage and in roughly 30 months would have increased its operating capacity from just over 200 MW to 1000 MW. The government has introduced a mandatory scheme of renewable purchase obligations where based on the power production per state it is mandatory to either produce or buy renewable energy. This would bring about higher realisations to OGPL in particular and bring many more such developers into the forefront.
In terms of efficiency considering the present wind and wind energy production in the country some ball mark numbers would be 1.9 million units of power per annum for 1 MW of wind energy and roughly 7.6 million units per annum for 1 MW of bio mass. In case of wind power there is virtually no cost other than maintenance and depreciation. In the case of biomass roughly half the revenue earned of Rs 5 per unit goes towards fuel costs. Besides the fuel cost there would be costs of depreciation and interest costs.
Conclusion
OGPL is a great business story going forward considering the business and the opportunity in the sector. OGPL has the expertise through its parent of construction and erection (Shriram EPC) and also supply of wind mills through its parent’s JV with Leitner of Italy. The down side from current levels of Rs 47 could be a maximum of 10% and this stock is likely to give you decent returns in the medium term and handsome gains in the long run.
Patient investors should subscribe to the issue at the lower end and look to add if the stock price falls post listing for decent returns in the medium term.
SEBI Disclaimer: – I intend to apply for the issue at the lower band.
