Scripscan:Orient Green Power Company Limited
Quote:I haven't wasted any time on the total power generation of the non renewable sector or at what pace it will grow in the coming decade.I even refrained from penning Orient's future exact multifold capacity generation level for the coming 5 year period.Both the aspects are of very little value to me.What I concentrated upon is on the immediate future.
Story:Orient green power is the only renewable play I prefer over any of its peers(no direct one available so including the conventional peers).The sector as you all know is Sunrising and will only grow for ever.The recent investor presentation given by the company further reinforces my bullish stand in the company.Orient Green Power (OGPL) is India’s leading renewable energy-based power generation company focused on developing, owning and operating a diversified portfolio of renewable energy power plants. OGPL, which currently has an installed capacity of 466.05MW(406MW of Wind power and rest of biomass till 12th august 2013), has another 134MW of prospective capacity expected to get operational by season of 2014.Financial closure has also been achieved for most of the projects. It would be prudent to note that the execution risks and project commissioning time are much lower for renewable energy projects due to the lower land requirement and lesser regulatory hassles.
1st quarter performance highlights:Orient Green Power Company has reported a consolidated sales turnover of Rs 126.32 crore and a net loss of Rs 8.72 crore for the quarter ended Jun '13.
WIND BUSINESS:19.0 MW was added during the quarter and aggregate of 67.0 Mw added upto August 12th 2013.Even though grid back down issues continue in Tamil Nadu, the generation from assets was better due to better wind availability and refurbishment of certain under performing as sets.Operating revenues improve by 5% to 80.7 crs.EBIDTA improves to 70 crs from a level of 60.7 crs in Q1 FY13 on the back of increased capacity, better generation and realisation. PLF(Plant load factor) would have been better but for the grid back down during the season.Petition filed at APTEL on Transmission Charges has been allowed and the TNERC /TANGEDCO have reduced the transmission charges by about 70% of existing levels leading to significant savings accruing from 21st June 2013 onwards.Aggressively pursuing further capacity additions in potentially good wind sites during the year in order to achieve commissioning before the season of 2014
BIOMASS BUSINESS:One unit in Rajasthan which faced fuel issues has turned around with 81% PLF in Q1.Plans on to commission balance 45.5 Mw units over the next 3 months.Tariff levels remain firm in Tamil Nadu at 6.50/6.75 per kwh.Operations continued to be suspended in two units in Rajasthan due to very low tariff levels and high cost of fuel. Efforts on to revive the operations in these units.Operating revenues for Q1 were at 4.5crs and EBITDA at 6.7crs crs.During the quarter, Indian Biomass Power Association through the active support of Ministry for New and Renewable Energy (MNRE) has petitioned Ministry of Finance for following measures and benefits :Introduction of Generation Based Incentive (GBI) for biomass industry.Interest subvention of at least 2% p.a. for all loans to this sector.According Priority sector status for lending to this industry.
Key mitigants and initiatives that would positively impact performance in coming quarters and years.
Wind Business:Grid infrastructure is expected to improve significantly in Tamil Nadu only after the next 2 years which would lead to improved PLFs from 2015-16 onwards.Appellate Tribunal for Electricity’s (APTEL) order granting relief from excessive transmission charges in Tamil Nadu would go a long way in improving margins.Increase in Feed in Tariff rate from 3.50 per KwH to 4.70 per KwH would provide improved viability to Andhra Pradesh business.Renegotiating terms with customers to increase tariffs by way of pass through of additional levies partly.Tied up External Commercial Borrowings (ECB) of USD 50 Million which would reduce blended cost of borrowing and complete hedging done for drawn down amount of USD 35 Million with an IRR of 10.7% and settlement at INR 53.56.Actively pursuing refinancing / securitisation of receivables in respect of the entire loan of about 300 crore relating to old wind assets with intent to reduce cost of borrowing besides a more staggered repayment schedule.
Biomass Business:Close to finalising option of outsourcing operations of one biomass plant in Rajasthan which is now shut expected to generate positive cash flows once implemented.Actively pursuing regulatory agencies in Rajasthan and elsewhere for annual tariff fixation based on fuel price -- APTEL petition in final stages.Evaluating option of Group Captive model for optimising sales realisation.Energy Plantation as a means for fuel security at Wind farms /Contract farms expected to moderate the cost of fuel.Expect captive generation of fuel on about 1,000 acres of land in 2013-14 in Tamilnadu and exploring options in Rajasthan.Continuously focusing on measures to refinance existing high cost debt at lower rates of interest and generally to deleverage the business.
Change in Promoter Holding and Preferential Issue:Post restructure, Shriram Industrial Holdings Ltd. (SIHL) holds all the investments in Orient Green Power Company Limited.SIHL has further infused 150 crore by way of preferential issue in the Equity Share Capital of OGPL in March / April 2013 at Rs. 15 per share (about 30% premium over prevailing market price).The above investments reinforces the strong commitment of the Shriram group towards supporting and growing the renewable energy business.I feel the investment has been a master stroke by the promoters.At one end they swallowed shares worth 150crs through the open market route from the weaker hands which has helped them to raise their stake to 76%.It will help the company to attract significantly higher valuations owing to lack of shares in the market and also of the fact that it lacks a direct comparable peer.On the other end the company will move ahead with its giant capacity expansion plans with the money that the promoter infused.
Conclusion:The company reported consolidated total income of 473crs and a loss of 80 odd crs for fy13.In FY14 so far, OGPL has commissioned 12.8 MW in Tamil Nadu, 12.6 MW in Gujarat and 43.2 MW in Andhra Pradesh.In addition, it also expects to achieve commissioning of 18.6 MW of wind capacities and 15.5 MW of biomass capacities before the end of August this year. This will take OGPL over the 500 MW mark in terms of installed and operating renewable energy assets.With an asset base nearing 500 MW, rising economies of scale, healthy balance sheet post the recent fund infusion and expected restoration of generation-based incentives, it will deliver a much improved performance this fiscal.Orient green does not have any direct comparable peer in the bourses due to relatively nascent stage of business.On a trailing BV basis, OGPL is available at P/BV of just .4 on FY2013 financials, which I believe is stunningly cheap(Company came with it IPO few years ago at 55 bucks with PV of over 2).Stock looks very attractive at current valuations.With its rapid capacity expansion plan and strong project execution capabilities,the company has got a great future ahead.Robust pedigree quality,future earning visibility and favorable demand-supply dynamics coupled with favorable Govt policies,Orient green is an amazing investment bet for medium to long-term oriented investors who wants to have a pie of the renewable energy saga.
btw:Its a bet for investors who can atleast wait for 3 years.If you feel you can wait till that period,Orient green should provide you with a hefty 4-5 bagger gain,which you always craved for.
People looking for midcap/smallcap positional call professional service may rush a mail at my mail id email@example.com to know more about it.