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The stock of JSW Energy surged close to 10 per cent today. This came about after the power producer announced that it had entered into an agreement with Jaiprakash Power Ventures (JP Ventures) to buy the latter’s 500 MW Bina thermal power plant.
JSW Energy also announced that it has completed the acquisition of JP Ventures’ two hydro power assets. The deal that values the company's assets at ₹9,275 crore comprises the company’s 300 MW Baspa II and 1,091 MW Karcham Wangtoo hydro electric projects, both in Himachal Pradesh, was proposed last year. While the deal values the power assets at around ₹7 crore/MW, higher than the market valuation for peers such as NHPC, it gives JSW energy, operational power projects. This should take up JSW Energy’s generation capacity up from 3,140 MW to 4,440 MW, after one excludes 91 MW of the Karcham Wangtoo plant. According to the Central Electricity Authority, the plant capacity will have to be maintained at the approved 1,000 MW, as against the operational 1,091 MW.
Once the acquisition of the Bina power plant too is completed, the company's generation capacity will rise further to 4,940 MW. Seventy per cent of the power produced from the Bina plant is sold under long-term power purchase agreements. This provides certainty on the revenue front. To the extent that the remaining 30 per cent power is sold in the merchant market, the company will be exposed to tariff volatility and lack of buyer assurance.
Following the announcement, the stock of JP Ventures too gained 5 per cent, while that of the parent company Jaiprakash Associates (JP Associates) went up 3 per cent. The proceeds from the sale of the hydro power assets will help deleverage parent JP Associates’ consolidated balance sheet (₹61,285 crore debt as on 31 March 2015). The company had a debt-to-equity ratio of close to six times as on March 31 and it should be able to lighten its debt and bring down the ratio to five times. But, the asset sale will deprive JP Ventures of a sizable portion of its current revenues and cash flows. The two hydro power plants generated revenues of about ₹1,760 crore out of the company’s total revenues of ₹4,140 crore in 2014-15. After this sale, JP Ventures is left with an operational hydro power capacity of only 400 MW. Once the Bina plant is sold off, the company's operational thermal capacity will come down to 1320 MW.
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