Midcap Scanner: KSK Energy Ventures
Munira Dongre 17 September 2010

KSK Energy saw a sudden spurt recently on media reports that Malaysian billionaire T Ananda Krishnan’s Usaha Tegas Sdn plans to invest $250 million in the company. Here’s a closer look at the organisation

Hyderabad-based utility company KSK Energy's stock price has seen a sudden jump after languishing at the Rs150-Rs160 levels since June. The key driver for this stock is that in a few years time, if all its capacity expansion plans go well, it will enter the big league with around 10,000MW of capacity. However, for now, it looks like the successful commissioning of its 540MW Wardha Warora project (which is already at the half-way mark) is a near-term trigger. If all goes as planned, its revenues will see a significant jump this year.

COMPANY SNAPSHOT

Market cap: Rs63 billion
Face value: Rs10
52-week H/L: Rs225 (22 Oct 2009) /Rs153 (31 August 2010)
Promoters: 53%; FIIs: 13%; DIIs: 8%
Current market price: Rs169


Its management expects earnings of Rs5 billion in FY11 and Rs9 billion in FY12 based on revised PPAs for its under-construction projects and merchant rates of around Rs4-5/kwh.  Its FY10 revenues and profit were Rs4.5 billion and Rs1.9 billion respectively. Its June quarter revenue and net profit figures were at Rs2.4 billion and Rs966 million respectively.

KSK Energy Ventures (KSK) is the Indian listed subsidiary of KSK Power Ventur Plc, a London-listed entity. The group holding structure is given in the graphic below:

The company is promoted by first generation entrepreneurs KA Sastry and S Kishore. It began in 2000 with a small 20MW plant in Kasargod (Kerala). Currently it has 279MW operational capacity, 3,730MW in the process of completion, and 6,345MW in the planning stages. A lot of its capacity is coming up in central and north-east India and most of its capacity is coal, although it does have three hydro projects.

Here are a few details of its projects...

Operational projects:

- 58MW Sai Regency Power, Tamil Nadu
- 43MW Sitapuram Power Plant, Andhra Pradesh
- 43MW Arasmeta Captive Power Plant, Chhattisgarh
- 135MW VS Lignite Power Plant, Rajasthan
- 52MW Bahur Power, wind-based, Tamil Nadu

Projects under construction:

- Wardha Warora Power Plant (Maharashtra) - 540MW; Coal (2x135MW units already up)
- Arasmeta Expansion, (Chhattisgarh) - 43MW; Coal

Projects under initial construction or in the development stage:

- KSK Mahanadi, Akaltara (Chhattisgarh) - 3,600MW; Coal (expected to be up in FY13)
- KSK Dibbin (Arunachal Pradesh) - 130MW; Hydro

Projects in the planning stage:

- JR Power; 1,800MW; Coal; Orissa (expected COD: 2015)
- KSK Narmada; 1,800MW; Coal; Madhya Pradesh (expected COD: 2015)
- KSK Naini; 1,800MW; Coal; Orissa (expected COD: 2016)
- Kamang HEP; 600MW; Hydro; Arunachal Pradesh (expected COD: 2016)
- Kamang Basin HEP; 345MW; Hydro; Arunachal Pradesh (expected COD: 2016)

For the KSK Mahanadi 3,600MW project, it has a tie-up with GMDC and GIDC for their Morga-2 and Gera Pelma-3 blocks respectively. KSK recently (in early August) started the second 135MW unit of its 540MW Wardha Warora Project (4x135MW) near Chandrapur in Maharashtra. The first unit in this series began in May this year and subsequent units are expected every three months. Its135MW lignite-fired plant in Rajasthan began in March. Its next project to be up is expected to be the 3,600MW Chhattisgarh one.

For the 540MW plant at Maharashtra, it has a purchase tie-up with Maharashtra State Electricity Distribution Co Ltd for 450MW at Rs 5.19/kwh for one year - this will begin only after all the units in this series are complete. Until then, it is selling power on a merchant basis. From FY12, KSK has entered into a power purchase agreement with Reliance Infra for 300MW at Rs4.75/kwh for 3 years for the latter's Mumbai area.

In a March 2010 report on Indian utilities, Credit Suisse had declared that KSK was the (then) cheapest stock in terms of capacity adjusted relative valuation and has said that it sees a five times EPS growth in the stock over FY10-12.

In June this year, it signed a PPA with Gujarat Urja Vikas Nigam Limited for the long-term supply of 1,010MW of power, based on dedicated coal supplies from Gujarat Mineral Development Corporation and its coal blocks from KSK's 1,800MW Narmada plant.

KSK develops most of its power projects through various SPVs, where the consumer also holds equity. This helps disperse risk for both parties. Key foreseeable risks to stock performance include difficulty in raising money for projects, rising debt to equity ratio as bigger projects come up, and use of Chinese equipment. The company raised Rs12 billion in its IPO and a little more than Rs5 billion in a QIP this year.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).

Comments
Shibaji Dash
1 decade ago
Dicy. Too risky. Setting up Infras despite media brouaha are shots in the dark. They have to jump many hurdles including the environmental and rehabilitation issues.See how NHPC and NTPC are presently stuck.
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