Recommendation from Power Generation/Distribution Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

\SJVN: IN A POSITION OF POWER

HERE IS WHY
✓ Long-term growth potential
✓ Strategic partnerships for expansion
✓ Impressive overall financial status

P ower is a factor vital for a country’s progress. India’s power sector is diverse, generating from conventional sources like coal, lignite, natural gas, oil, hydro and nuclear power, as well as non-conventional sources like wind, solar, agricultural and domestic waste. The country’s electricity demand has rapidly increased, necessitating a massive increase in installed generating capacity. Owing to this higher power demand and the prospects ahead, our low price scrip recommendation for this issue is SJVN.

SJVN, formerly known as Satluj Jal Vidyut Nigam, is an Indian public sector undertaking involved in hydroelectric power generation and transmission. SJVN operates power projects in India, Nepal and Bhutan. The company is also engaged in the business of providing consultancy for hydropower projects. It has installed 2,227 MW of renewable energy projects and plans to add 240 MW more in the upcoming quarter. The aim is to install 25,000 MW by 2030 and 50,000 MW by 2040, with a target capacity of 12 GW by 2026. It has also been commissioned various solar power projects in different states.

It has received government approval for joint ventures with Assam Power Distribution Company and MAHAGENCO for renewable energy projects. The company is listed as a renewable energy implementation agency by the Ministry of New and Renewable Energy. The future plans include exploring long-term PPAs for projects like Naitwar Mori and Arun 3. In Q3FY24, on a consolidated basis, the company reported net sales of ₹543.31 crore, a QoQ decrease of 38.14 per cent a YoY decrease of 1.57 per cent. The total expenditure of the company stood at ₹174.84 crore as compared to ₹171.43 crore in the same quarter the previous year and sequentially increased by 1.54 per cent. The net profit of the company stood at ₹129.10 crore as compared to ₹251.97 crore in the same quarter the previous year and sequentially fell by 69.57 per cent. The company’s financial performance for the last quarter appears weak, with a decline in net sales. This decrease could be attributed to several factors.

Reduced generation from their hydroelectric projects, potential outages at other power plants, or a slight decrease in capacity incentives might be the contributing reasons. Also, the changes in power purchase agreements or rising operational costs play a role in the decline. At TTM, the shares of the company are trading at a PE of 55.7 times, which is very much higher as compared to its three-year median PE of 9.8 times. If we look at its PBV, it is currently at 3.56 times, which is higher than the industry PBV of 2.26 times. The company’s valuation might seem to be high.

Nevertheless, it needs to be looked at from SJVN’s long-term growth potential, fuelled by factors like planned capacity expansion projects, diversification into new energy sources, or the potential for improved operational efficiency. Additionally, a strong overall financial position with low debt and a historical track record of profitability could make SJVN an attractive investment for long-termfocused investors. These factors contribute to a favourable outlook for SJVN. With its planned capacity growth and concentration on new energy sources, the company is well-positioned to capitalise on this expanding market as the need for electricity grows. Hence, we recommend BUY.