Orient Green Power Company - Subscribe

Orient Green Power Company - Subscribe

Orient Green Power Company (OGPL) which is promoted by Shriram EPC is into renewable energy and its portfolio includes biomass, biogas, wind energy, and small hydroelectric projects. Currently, its total portfolio of operating projects totals up to 193.1 MW of aggregate installed capacity that comprises 152.6 MW of wind energy projects and 40.5 MW of biomass projects. The company is tapping the equity market through its initial public offering to raise Rs 900 crore. The price band is fixed at Rs 47 – 55.

Its wind mills are concentrated in Andhra Pradesh and Tamil Nadu while the biomass plants are located in Maharashtra, Tamil Nadu, and Rajasthan. Its wind mills in Tamil Nadu have capacities of 63.33 MW, 34.05 MW, and 28.95 MW while the one located in Andhra Pradesh has an installed capacity of 26.25 MW. The plant load factor (PLF) in the wind power segment stands at 27 per cent which is higher than the industry average. OGPL sells the power to state electricity boards pursuant to long-term power purchase agreement (PPAs). It also sells power to private consumers seeking to supplement state power supplies for captive purposes. The tariffs here range from Rs 3.50 to Rs 4.70 per kWh. It also sells in the open access market for rates up to Rs 6.50 per kWh and this is a preferred route. All the biomass plants of the company are equipped to use coal as an alternate fuel. It also derives income from the recognition of carbon credits generated from its various projects.

Business
By end of FY13, OGPL claims to achieve energy mix which may be as follows: 77 per cent wind energy, 21 per cent biomass and 2 per cent small hydro projects. The current tariffs for the wind projects range between Rs 2.7 and Rs 5 per unit while the upcoming capacities have better rates and may range anywhere between Rs 4.17 and Rs 5.63 per unit. The management expects tariffs on overseas projects to be Rs 5.5 per unit in Europe and Rs 8 in Sri Lanka. These tariffs are attractive and will help the project-specific ROEs to translate into overall ROEs.

The company plans to foray into international markets (especially Eastern Europe) which have better incentive system for renewable energy. The upcoming wind projects use superior technology as compared with existing ones which will improve the overall wind PLF. Possibilities of brownfield expansions also emerge as some of the wind projects are nearing the end of their expected lifespan.

In biomass, decentralised nature of the feedstock availability increases the cost of procurement for biomass; costs may be pass-through but constraints in availability of feedstock are a bigger concern. The company holds average inventory of 45-60 days of feedstock to mitigate this threat.

 Expansion Plans
The company is expanding its capacity and portfolio of committed and development projects, including approximately 815.5 MW of prospective capacity, to take its total capacity to 1,008.60 MW. It is planning to carry out the entire expansion exercise by 2013. This will comprise of an estimated 622.0 MW of wind energy projects, 178.5 MW of biomass projects, and around 15.0 MW of small hydroelectric projects.

For wind power generation, the company plans to expand its footprint in Gujarat and Maharashtra. It is also setting into motion an international expansion plan that will cover Sri Lanka, Croatia, the Czech Republic, and Hungary. In terms of wind power, the company will add 75 MW in 2011, around 364.50 MW in 2012 (including 55.50 MW in Sri Lanka), and 182 MW (including 44.50 MW in Sri Lanka and 97.50 MW in Europe) in 2013. For its biomass projects, it will add 65.50 MW in 2011, 79 MW in 2012, and 34 MW in 2013.

Outlook
On the financial front, the company has witnessed losses in both FY09 and FY10. In fact, the loss has increased to Rs 12.24 crore at the end of FY10 as against a loss of Rs 7.95 crore in FY09. On the post issue equity capital the company is likely to trade at P/BV of around 1.66-1.69x and 1.94-1.98x on its respective price bands of Rs 47-55. The P/BV in the sector varies from 1.63x – 4.09x. The company also claims that all its projects will be in black by the end of FY12. The land acquisitions for all the projects are already done. The entire development process for wind power and biomass plants are in the range of 15 – 18 months. The company is accredited to UNFCC for carbon credits. At present the company does not have any long-term supply contracts for their biomass projects and they are working on that front and hope to reach a supply contract soon in the near future. The average cost per KWH for biomass stands at Rs 2.50 and the realization stands at Rs 5 per kwh. At present the biomass facilities operate at a PLF of 80 per cent. The plans that the company has taken are likely to take around two more years to materialize. Therefore, looking at the present scenario we suggest our investors to subscribe to the IPO with limited exposure according to one's risk appetite.

 

Issue Information	Rating
Issue Opens on	21-Sep-10
Issue closes on	24-Sep-10
Issue Size (No. of Shares)	16.36 – 19.14 crore equity shares
Price Band (Rs.)	Rs. 47-55
Issue Route	Book Building
Market Lot	125 equity shares
Promoters	Shriram EPC, Shriram EPC (Singapore) Pte and Orient Green Power Pte
Post issue Equity	44.02 – 46.80 crore equity shares
Lead Managers	JM Financial Consultants, Goldman Sachs (India ) securities, UBS Securities India and Axis Bank
Listing	BSE, NSE
Retail Portion	5.7-6.7 crore equity shares
QIB Portion	8.2-9.6 crore equity shares
Non-Institutional Portion	2.45-2.87 crore equity shares

 

Financial Performance (Rs/Cr)
	FY10	FY09
Total Income	56.22	12.12
Operating Expenses	66.58	19.86
Operating Profit	-10.36	-7.75
Depreciation	8.59	1.54
Tax	0.55	-1.19
Net Profit	-12.24	-7.95

Share Holding Pattern	Pre Issue	Post Issue
Promoter & Promoter group	94.88	53.88-57.88
Other Investors	5.12	5.12
Public		37 - 41
Total	100	100