This one is not for the purists or the faint hearted. The rest of you opportunistsmay go on
Entegra is a holding company for all current and new Renewable energy ventures of MW Corp group and the promoters hold 75% in it.
Flagship project of the group is - Shree Maheshwar Hydro power project, a 400 MW run of the river Hydro Power project. (40MW X 10 turbines)
To cut a really long story short, this project has been ongoing for ages and the civil work is complete and the co has already invested 3000cr. However, like several such projects in India, it never took off due to court cases by villagers, Narmada Bachao Andolan, fund crunch etc. In Jun’12, it finally got the go-ahead by the ministry (MoEF) but was again stuck due to court case by villagers in National Green Tribunal.
Finally In August, NGT gave permission to raise water level to 154m and run one turbine (40MW), and also complete resettlement of affected villagers. The co claims there will be no submergence of villages till that level but to generate full electricity, level will have to be raised to 162 m at which point there will be submergence and resettlement is ongoing. The NGT is supposed to fast track such cases and it will again come for hearing in October and the stage is set for culmination of the long drawn battle. The govt wants to resolve electricity and drinking water problems so they are in favor of this but the villagers will always throw in spanners and spades to delay such projects.
In 2010, when the project was about to be commissioned, the stock used to rule at 35-40 and I have few research reports (freely available) giving targets of 50-60 ( EPS 6-9) and Tulsian recommended it in his multibagger picks as a doubler in a year. Since then, because the commisioning never happened, the stock price crashed to Rs 7 and is currently at 10-12. The trading volumes of late have seen a relatively huge jump.
So we have a stock at Rs 10 now which under mostly the same conditions 2 years back used to be Rs 40 and was slated to go to Rs 60-70+ in a year
I do have few research reports dated 2010 giving financial projections, cash flows etc. and EPS targets varying from Rs 6-9. I do not know how much of the cost projections have changed now and I do not claim to understand much of all that anyway but below are some other highlights:
With full commissioning of this project, it will be one of the largest hydro power project implemented by a private sector company.
Long term PPAs signed with the Madhya Pradesh government will guarantee an assured cash flow to the company: The key strength of the project is the 35-year Power Purchase Agreement with Madhya Pradesh (MP) Government. The payment from MP Government is backed by Letter of Credit from State Bank of India.
The PPA provides for reimbursement of fixed and variable costs and a guaranteed base return on equity (ROE) of 15.5% for generation up to design energy level (970mn units). The project is expected to generate approximately 50% higher energy levels considering the water flow from the upstream projects a 1,000MW Indira Sagar and 520MW Omkareshwar. Considering 99% utilization and generation of 1,370mn units p.a., the project can earn approximately 16.3% additional ROE taking the total effective ROE to 31.8%.
As the entire generation is sold to the MPEB, the project is also anot entitled to pay any royaltiesa for usage of water.
The project is entitled to an aincome tax holiday for a period of any 10 yearsa from the block of first 15 years.
The company currently has no revenues as its revenue stream is highly dependent on the 400 MW hydro power project which is yet to start commercial operations. Any further delays in meeting the deadline for commissioning the project will lead to more cost overruns without any cash flows coming in.
The management has no prior experience of operating hydro power plants
The company maintains a website http://www.maheshwarhydel.com. The news section is very updated with all the local news clippings positive or negative
Disclosure : Invested