Orient Green - Cash Flow Turnaround Story

Market cap as on 05.02.2018 on BSE is 803 Crore

The company was incurring the huge losses in the past three four years. The Company came with IPO around 55 somewhere around 2010. The company has created 425 MW capacity in wind energy in 96 MW in the biomass power. Company was incurring huge losses in fast 3-4 years the stock price went down from the ipo price of 55 to Rs. 10.86 on 05.02.2018.

There were three reasons for the losses

  1. The losses from the biomass business
  2. Unavailability of grid in the Tamilnadu for evacuation of wind power. (Availability around 75%)
  3. High interest loans

Now the situation is currently as follows

  1. Company has sold all the loss making biomass power plants
  2. Grid availability in Tamilnadu has improved more the 95% in last six quarters.
  3. Higher interest loans taken for biomass business has been transferred and remaining loans have been restructured. There is still scope for improvement in the interest cost. For remaining details please see the investor presentation

The company has reported the financials for the Q3 2018 on 25.01.2018. In 9 months the company has generated the cash profit from wind business of Rs. 132 crores (94 crores depreciation + 38 crores of profit before tax) (Refer page 18 of Investor presentation)

Now the almost all the biomass assets are sold company will be only left with the wind business.
Company will report the following estimated cash flow from the wind business in FY 18
Rs 152 cr (Rs 132 crores for 9 months and 20 crores assumed for quarter 4)

Company can report the following cash flow from wind business in 2019
Rs 152 cr + 20 crore assumed in interest saving which looks easily feasible 2% on 1000 crore + 25 crores assumed from the newly commissioned wind energy capacity which will go live in April 2018
So total comes to around 197 core

So 197 crore cash flow on market cap of 803 cr, which looks cheaper to me.

There are some other positives which can be found in the investor presentation and con call scripts.

Grid Unavailability in Tamilnadu

Disclosure Invested around 2% of My net-worth in the stock around 10.50
Con call details
Investor Presentation

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The biggest risk is - downside to the tariffs which are prevailing between Rs. 4.3 - 5.6; however the latest auctions, the tariff were proposed to be lower than Rs. 3/-. What are your thoughts on this.

For this please see the interview of management on 25.01.2018 on money control.

Thank you for sharing your thoughts.

I work in the renewable energy sector. Two chip in my two cents, wind sector does not have a stable capacity or revenues growth outlook. With wind following the solar bidding pattern, there is going to be very stiff competition. Due to bad evacuation grid infrastructure and low creditworthiness of Discoms I would be staying away from wind or even solar project developers for that matter. One problem which everyone can appreciate with energy generation companies is that they are affected by the politics around electricity pricing. Since electricity prices are not allowed to increase at the required rate this affects operators and distributors, also leaving no money for additional infrastructure.

I do think however that taking a stock specific approach might make some money here in the next two to three years (the company will also claim its past losses to reduce tax and this may reflect in cash flows) but this does not look a value buy to me.

Thanks for your reply.

I agree with your point that there is not certain wind outlook. But in case of orient green all PPA’s have already been signed. As you already work in renewables can you please specify the specific risk with regard to this company.

In my view this stock is available at very decent valuations.

Discoms across Indian states have a reputation for not honoring PPAs. See the excerpt below from FE - http://www.financialexpress.com/industry/wind-power-tariff-hits-new-low-what-this-means-to-concerned-parties/832074/

“In the recent past, there have been multiple instances of state discoms, under financial distress, showing reluctance to buy wind power at the contracted prices, citing high cost. Andhra Pradesh’s discoms, for instance, asked the state’s power regulator to change the terms of power purchase agreements, signed in 2015. Also, one of the Karnataka discoms cancelled PPAs of 75.6 MW with wind power projects. Rajasthan discoms too have been delaying late payment surcharge to wind power generators even after the state regulator directed them to clear all the dues. Concerned over the undesirable trend, power minister Piyush Goyal has asked the state power utilities to honour the PPA commitments.”

Also check the article below from Mercom - https://mercomindia.com/mercom-exclusive-payment-delays-increasing-risk-project-costs-solar-wind-projects-many-states/

Mercom previously reported that Tamil Nadu, Rajasthan and Maharashtra, have a track record of payment delays and curtailment of renewable energy.

Payment delays affect the project liquidity, the money is stuck, and yet we have to pay back our lenders. If we fail to make our payments, lenders will have apprehensions about financing, stated another developer.

High debt to equity combined with delayed payments paint quite a gloomy picture for OGPL. You can see this across financial ratios such as Altman Z Score, Interest coverage ratio etc. on https://www.screener.in/company/GREENPOWER/consolidated/

From my short experience in stocks, we think of cheap valuation as a symptom of value buy but they can also mean market rejection.


I find it very difficult to see the turn around ! may happen and there is good chance may not happen.

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Hello Amit,

Can you elaborate on this. Why turnaround can’t happen.

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They have 412 MW of wind power assets. Taking a conservative value of 6 crore per MW, they have assets worth around 2500 crores. Debt is around 1400 crore. Thus, they should have a value around 1000 crore. Lately, they have also turned cash flow positive. But, will they show profit in foreseeable future? Interest burden is reducing, but it is still at a level to make them a perpetual loss making company. It is difficult to invest in green energy companies based on pure fundamental parameters.
However, Government has given indication to promote green energy in the recent budget. Adani Green is touching stratospheric valuation. They may have a rub in effect to reach to a fair valuation of around 1000 crores.
[Disclosure- Invested]


Hello dear community. Does anyone have a fresh take on the whole 300% rise in value in few months? Yes we’re aware promoters have been able to take back the pledged shares. But what else do you think is triggering this wave?

I think the buyers r more interested in the green energy name than the actual fundamentals of the stock.In the recent past an institutional investor sold huge quantities of the company shares through a bulk deal.

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was very surprised to know that LIC has about 2.65% stake in this company, when the fundamentals aren’t very strong… so i am not sure what i am missing…
Will be helpful, if someone can throw some light or knows what excited LIC in picking this stock.

It is a shriram group company. Shriram group is going to sell the company. It is in the preliminary stage. If u r interested in green energy stock u can buy it at around 10-12 Rs.Wait for the circuit to end.

thanks for your response… is this stock a good pick for long term? Would it be better to wait and see the earning results for a couple of quarters and then enter?

Very difficult question to answer.Now green energy is favorite of all investors.But it is not possible to say what turn Orient green energy will take after it changes hands.However,if u r prepared to take risk, can buy at the level I had suggested earlier. Why don’t u buy fundamentally good shares with good dividend paying recored.Indian oil,ITC,HPCL etc.

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Thanks for your response… EV & renewables got me excited as this is where the industry is moving, hence i try to find out some stocks that are good in these sectors. Will definitely take a look at the other stocks that you have mentioned…

Sorry for the late response…