Orient Green Power has entered the capital market on
The company, promoted by Shriram EPC Limited, is an independent renewable energy-based power generation company, with present operating capacity of 213 MW, of which 172.5 MW is wind energy (4 wind farms in Tamil Nadu and Andhra Pradesh) while 40.5 MW is biomass and biogas (6 plants in Tamil Nadu, Maharashtra and Rajasthan). Entire present operational projects in the company's fold have been acquired through the inorganic route in the past.
Now, the company is embarking on
At present, the company is a 94.75% subsidiary of Orient Green Power Pte Ltd,
Fund raised from the IPO will go towards capacity expansion and debt repayment:
a) Establishment of a 300 MW wind energy project in Tamil Nadu - Rs. 510 crore
b) Establishment of 5 biomass projects aggregating 45.5 MW capacity in
c) Re-payment of debt - Rs. 148 crore
For FY10, the company reported consolidated income of Rs. 56.2 core, of which, income from carbon credit stood at Rs. 8.1 crore. However, Rs. 6.5 crore of income from carbon credits is based on management estimates for which no carbon credit certifications have been received by the company. Also, since the time the company started its first power project in April 2008, post-acquisition of 8 MW biomass plant in Rajasthan, it has been reporting a negative bottomline. Hence, the company cannot be valued on PE multiple basis. Net loss for FY10 stood at Rs. 12.2 crore.
Post issue, the company's equity will rise to Rs. 440 crore, if the book gets discovered at the upper end of the price band. At Rs. 55 per share, this works out to a market cap of Rs. 2,421 crore. Add to this the existing debt of Rs. 272 crore (post repayment of Rs. 148 crore from IPO proceeds). To complete the additional 345.5 MW power generation capacity (300 MW wind and 45.5 MW biomass, as stated in the objects of issue), besides the IPO proceeds, the company will borrow Rs. 1,361 crore as debt, which has been sanctioned, as of date. Thus the company's debt will rise to Rs. 1,633 crore, resulting in an enterprise value (EV) of Rs. 4,054 crore for 558.5 MW.
This works out to an EV of Rs. 7.26 crore per MW, as against cost of setting up of Rs. 5.7 to 6 crore per MW for the new projects, which will get operational only post-FY12. Also, company's present capacity has been acquired, inorganically, at much lower valuations of Rs. 3 to 4 crore, in the past, as all of them were second hand lying closed for quite sometime. Neither the company's present capacity (size), nor its financial performance, call for such a premium valuation.
Once a big rage, wind no longer is the 'flavour of the season'. The market has lost the fancy of wind energy companies, which operate on a plant load factor (PLF) of less than 25%. Even running bio mass power projects has its limitations of capacity of not more than 20 MW and its geographical dispersal across the country. Inducting skilled manpower for such bio mass project is also difficult , as local contacts and technical competence are key for success of these power plants. Inspite of such a difficult spread across the country, the company is also expanding in
Considering all these, it is definitely an expensive issue, which will also have administrative difficulty of running as plants will be spread across the globe, of smaller capacity. Much better established power players having significant presence in thermal power generation space is available and it will be better to avoid this issue and go with the selected listed power generating players.