Orient green power limited


Price 10,.90

Market Cap : 509 crores

Book Value : 24.10

Face value; 10

The Company came out with Public issue of 19.15 crores equity share @ 47 per share aggregating 900 crores. The Company belongs to Shriram Goup Chennai. The Company faced multiple challenges like, Low wind availability, High feedstock prices/low quality due to heavy rains for its Bio-mass plants,Increase in Levy Charges in Tamil Nadu for Wind Business.

In order to overcome these challenges, company took proactive measures like moving away from PPA in Tamil Nadu for Bio Mass plants and broad basing of the feedstock.

Worst Seems to be over for the Company on the back of Significant improvement in Biomass operations in Tamil Nadu units, additional operating capacity improved realization in Wind Business in Tamil Nadu and revenue from Renewable Certicates.

In The wind business the company has increased the wind power tariff effective April 2012. The Company has stopped further expansion in Tamil Nadu due to grid Infrastructure constraints and is putting further capacities in States of Andhra Pradesh And Gujarat.

The Company over the years have put capacity as below:

Wind Capacity PLF Wind Biomass Capacity PLF

MW Tariff % MW Tariff %

Q1 2011 153 3.54 19.60 40.5 5.23 53.90

Q1 2012 180 4.08 18.90 40.5 5.46 61.40

Q1 2013 325 4.37 23.40 60.5 5.81 74.90

As can be seen from above the operational efficiency and realisation is improving for the Company.

In the June qtr the performance of the company has improved vastly and the company reported a Net profit of 22.60 crores ( Also the wind power peak business is from February to October, but biomass business is full 12 months business).

Also the company is refinancing its term loan with Cheaper rate of Interest, also the company has tied up with an ECB of USD 50 Million at very competitive rates with full Hedging. All this will futher improve the Consolidated Margins. The Company is further Expanding its business of wind power by 95.05 MW and Biomass business by 45.50 MW in the coming Quarters i.e by March 2013.

For the Next Financial Years company can report very good numbers, which can lead to substantial rerating of the Company.

Views Invited.

As you see from the balance sheet, Interest and depreciation eats away major/all portion of the pie (many time exceeding EBITDA). Not a nice sign for investment, as it question the margin of safety issue here. Frankly I am not able to calculate how low this stock can go in moderately worse case.

Most likely will turn into a good investment case, once interest rate comes down, so as the interest portion will reduce and thereby improving margin.

you r right sir, but the worst seems to be priced in and the management body language is very positive(I have met them at the AGM). The Loans are restructured and also the company has taken ECB loans. IN the past the had grid problems and the wind power capacity did not come up as promised by the management, there was delay in wind power capacity creation. The risk to reward ratio is very good.

Disc: I am invested into the scrip

But why is it that every time this company publishes its consolidated results, but doesnt publish standalone results. I was myself pretty much interested in this stock, although due to God’s grace I never got into this stock. I like the model of zero raw material cost, and hence was more interested. But somehow, the management’s action dont inspire too much confidence.

The cost of installing and generating 1 MW of power in India is 5 crore(may go upto 7). NTPC has 38000 MW installed and its market capitalisation is 136800 crores. 3.6 crores for every 1 MW. OGP has about 400MW installed capacity. Its market cap must be over 1200 cr. At predent its just above 500cr. The managements initial plan was to install 1030MW by 2013. They have fallen way short of it. But if they achieve that in the coming years, its book value at 50% should be 2500cr. Is my line of reasoning correct? Please share your views. I we look at their debt levels the likes of Graham would go into convulsions. Dis: OGP forms a very small part of my portfolio.

Key takeaways of the conference call-By Capital Market

Consolidated operating income for the quarter ended Sep 2012 more than doubled (up 115% ) to Rs 151.56 crore and the EBITDA was higher by 143% to Rs 101.16 crore facilitated by higher sales and expansion in operating margin to 66.7% compared to 59.1% in the corresponding previous period. The PBT before (un-allocable overheads) was higher by 220% to Rs 30.94 crore. Un-allocable overheads (net of income) was lower by 39% to Rs 0.22 crore and thus the PBT was higher by 211% to Rs 31.15 crore. Eventually the PAT (after MI) was higher at Rs 22.54 crore compared to mere Rs 2.00 crore in the corresponding previous period.

The operating income of wind business was higher by 107% to Rs 106.02 crore and its EBITDA was higher by 132% to RS 95.38 crore. Operating income of Biomass business was higher by 136% to Rs 45.55 crore and its EBITDA was at Rs 5.78 crore (compared to just Rs 0.49 crore in the corresponding previous period).

Strong growth in sales can be attributed to improved PLF, generation from new capacities as well as improved unit realization. Sales realization continued to improve for both businesses with increase in tariffs and shift in sales mix from PPA to merchant.

Spike in other operating income (up 825%) is largely on account of income from sale of REC, which stood at Rs 19.93 crore in Q2FY13.

Other income was high during the quarter at Rs 20.09 crore due to gain on sale of equity stake in Sri Lankan subsidiary (Rs 2.75 crore) and foreign exchange gain upon taking hedge of ECB amounting to Rs 9.60 crore).

Gross power generation from wind for the quarter stood at 234 million units (124.85 MU in Q2FHY12) and the PLF stood at 32.9% compared to 27.27% in corresponding previous period. The average realization too has improved from 4.24/unit in Q2FY12 to Rs 4.55/unit in Q2FY13. Grid back down although continued in the quarter as well, PLF improved significantly due to better than expected wind availability. Realization was higher compared to previous year due to increase in tariff effective April 2012 in TN.

Overall generation capacity as end of Sep 30, 2012 stood at 397.91 MW including 337.41 MW in Wind and 60.5 MW in Biomass. Current wind capacity of 337.41 MW is expected to reach about 420.41 MW by end of Q4 FY13 with additions of 12.8MW in TN, 45MW in AP and 25.2MW in Gujarat.

Power exported by Biomass business in Q2FY13 was 59.02 MU (compared to 39.20 MU in Q2FY12) with PLF improve to 52.1% compared to 38.6% in the corresponding previous period.

One of the north based plants was shut down temporarily in Q2FY13 and also there is lack of availability of dry fuel across units due to monsoon. This resulted in lower generation on sequential basis, but for this, the performance would have been even better.

Blended realization of Biomass stood higher at Rs 6.31 per KwH (compared to Rs 4.51 in Q2FY12) with TN based plant switch over from grid to third parties. Consequently the realization of all Tamil Nadu units continued to be robust.

The tariff of biomass is higher due to TN units, where the realization is higher around Rs 7. And when the mix changes with increased contribution from northern units this will drop otherwise it is sustainable.

Benefits of tariff increase in TN were to large extent were offset by increase in transmission charges by TNEB.

In wind about 70% of generation will happen in H1 and 30% of only generation in H2.

AP wind feed-in- tariff revision from 3.50/unit to Rs 4.75/unit, this will positively impact the wind capacity to be commissioned in AP going-forward.

Hanumangarh bio-mass plant’s realization continued to be an area of concern due to low prices in the exchange. The company is taking efforts to move away the plant from Power exchange effective November 2012 and this is expected to improve realization and margins of this plant. Similarly exploring alternatives to revive the Kotputli plant which is presently not operational due to very high fuel cost in order to arrest the cash losses.

All four biomass units in Tamil Nadu and Sanjog in Rajasthan continue to get REC benefits during the quarter. Total REC revenues during the quarter aggregated to Rs. 83 Million with cumulative REC revenues for H1 FY13 being at Rs. 201 Million

Fuel Cost of biomass stood at Rs. 3.49 per unit (Rs. 3.27 per unit in Q2 FY 12) due to less availability of dry fuel. These prices are expected to remain high for some more time. Biomass - Raw material availability is also cyclical and in non seasonal the price of RM will be higher.

PLF of new wind assets was 28% and that of old assets was about 18-19%.

The company looking to refinance for existing debt as applicable for infra through ECB. The company is taking efforts to refinance its current debt with low cost rupee as well as ECB loans with more staggered tenors. This will lead to improved cash flows going forward.

REC registeredâ Currently 42.5 MW in biomass and 115 MW in Wind is registered for REC. That will go up to 140 MW in case of Wind and 70 MW in biomass by end of this fiscal. Thus REC trading volumes likely to increase for the company in the coming quarters leading to improved margins. Despite low demand the company mange to trade all its REC barring 13000 RECs as end of Sep 30, 2012.

The company originally planned for 300 MW capacity in TN but due to lack of grid capacity shifted 50% of it to other states so the land acquired for it is unused. Unless there is grid availability the expansion will not happen that can be put in block to raise resources. The proceeds from this will might be used to deleverage balance sheet.

Renewable Purchase Obligation has not been implemented by most States resulting in low demand for Renewable Energy Certificates with RECs trading at floor price in recent trades. While petitions seeking to exempt from RPO by some obligated entities has been rejected by Rajasthan High Court, in Maharashtra MERC has given time till Mar.'13 to meet 2011-12 obligations. In Tamil Nadu High Court has given stay on RPO Compliance on a host of petitions by Open Access Customers.