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8/8/2019 V S Lignite
1/20Initiatin
Covera e
yFinancial
E(RsMn) Sales YoY(%) EBITDA YoY(%) AdjPAT YoY(%) EPS(Rs) P/BV(Rs) P/E ROE EV/E
2008* 239 157 97 85 102 443 5.73 4.55 33.2 16%
2009 381 59 218 125 136 33 4.06 2.96 46.9 7%
2010 502 32 306 40 177 30 4.97 2.29 37.0 7%
2011E 2017 301 1208 295 373 111 10 2.43 21.6 12%
2012E 3147 56 1870 55 853 129 22.9 1.86 9.4 22%
ecompanycameupwithitsIPOinJune2008rce:Company,NetworthResearch
nalyst:
al
Salva
2230641600
ate:06th
September,2010
Capacityincreasefromcurrent144MWto4462MWoverFY
11FY15E
period
56%of718MWcapacityadditionforthecurrentyearalready
onstream
RevenuestogrowataCAGRof150%andEPStogrowby
115%overFY10FY12Eperiod
50%ofpowertiedinshorttermcontractsatapriceofRs.
5/kwhovernextthreeyears
WeinitiatecoveragewithaBUYandSOTPbasedtargetprice
ofRs.214/share
AtAnInflexionPoint:
Withmorethan700MWofcapacitytostartoperationinFY11,KSK,
we believe is at an inflexion point. The company's operating
capacity
will
grow
from
current
144MW
to
862MW
in
FY11.
Further, thecompany's first independent powerplant (IPP) of3.6
GWatChhattisgarhwillpropelthecompany'scapacityto4462MW
by FY15. The company has a good mix of medium term and long
termcontractswith industrialcustomers,providinggoodearnings
visibilityandstrongreturns.WeestimateKSKtoearnasteadyROE
of22%inFY12EandFY13E.
Uniquebusinessmodel:
KSKbuildsand operatespowerplants on 'groupcaptiveprinciple'
wherein itssuppliespowertoindustrialconsumers.Theplantsare
set up under project specific SPV's where the company's bulk
consumersalsoinvest(theonlyexitroutebeingtoselltoasimilar
bulk consumer), thus reducing KSK's equity investment in each
projectand
also
provides
an
assured
power
off
take.
KSK
earns
an
attractiveRoIE(~3540%)ontheseprojects.
Valuations:
WehavevaluedKSKonSOTPbasisforitsprojectdevelopmentand
power generation segment. We have estimated free cash flow to
equity for both the segments for the next 10 years and then
consolidatedittodeterminefreecashflowtothefirm.Assuminga
cost of equityof15.3% and terminalgrowth rateof5%,we have
derived our target price of Rs. 214/share. At CMP of Rs.162, the
company is trading at a P/E of 7.1x FY12E EPS of Rs. 23 and at a
P/BVof1.4xFY12EBV.Atourtargetprice,KSKwilltradeataP/Eof
9.4xFY12EEPSwhiletheP/BVwillstandat1.85xFY12EBV.
Rating
TargetPrice
Rs
CMP Rs
Upside
Sensex 18
KeyData
BloombergCode KS
ReutersCode KSKE
NSECode
CurrentShareo/s (mn) 3
DilutedShareo/s (mn) 3
MktCap(Rsbn/USDmn) 60/12
52WKH/L(Rs) 225/1
DailyVol.(3MNSEAvg) 250
FaceValue(Rs)
Beta
1USD/INR
ShareholdingPattern
Promoters
FII
Others
PricePerformance(%)
1M 6M
KSK 0.3 1.9
NIFTY 1.7 7.7 Source:Bloomberg;*Ason6thSept.201
NDIA
nstitutionalResearch
Power
InitiatingCovera
KSKEnergyVenturesLtd.
Poweringitswayup.
NetworthResearchisalsoavailableonBloombergandThomsonReuters.
8/8/2019 V S Lignite
2/20
Initiatin
Covera e
InvestmentRationale
Projectsinadvancedstageofexecution
KSKcurrentlyhasaportfolioof3projectsaggregatingto144MWinoperationviz,Arasmeta(43MW
Regency(58MW)andSitapuram(43MW).FY11islikelytobeawatershedyearforthecompanyasfu
3
projects
aggregating
to
718MW
will
become
operational
taking
the
total
capacity
to
862MW.
Of
thLignite(135MW)andunitIandII(135MWeach)ofWardhaWaroraplanthavealreadycomeonstr
ArasmetaexpansionandthethirdandfourthunitfromWardhaWarorashallbecomeoperationalby
ofthisfiscalyear.Thecompanywillalsomoveawayfromitstraditionalmodel(captivepowerplants
set up its first independentpower project withacapacity of3.6GW byFY15.Phase I of the proje
estimatedtobecomeoperationalbyFY14E.
Ofthetotalcapacities,VSLignite,Rajasthan(135MW)isalignitebasedplantandSaiRegency,Tamil
(58MW)isagasbasedplant,andtherestarecoalbased.
xhibit1:CapacityAdditions Exhibit2:FuelMix
144
862
2662
4462
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2010 2011E 2012E 2013E 2014E 2015E
Capacity MW
Year
CapacityAdditions
96%
3% 1%
FuelMix(4462MW)
Coal L ignite Gas
urce:Company,NetworthResearch Source:Company,NetworthResearch
ble3:Projectcompletionschedule
oject Fuel FY11E(MW) FY12E(MW) FY13E(MW) FY14E(MW) FY15E(MW) Total(
Lignite Lignite 135 13
asmetaExpansion Coal 43 43
ardhaWarora Coal 540 54
ardha,ChhattisgarhPhaseIandII Coal 1800 1800 360
talCapacityunderexecution 718 0 0 1800 1800 431
mulativecapacity 718 718 718 2518 4318 431
rce:Company,NetworthResearchPower
purchase
agreement
(PPA)
has
been
signed
for
all
but
1.8GW
of
capacity
of
the
Chhatt
plant(inprocess).Thecompanyhastiedupitscapacitiesunderlongandmediumtermcontracts
withfuelescalationclausethusprotectingitfromfuelpricevolatility.Theremainderwillbesold
shorttermcontracts.Ithasfuelsupplyagreement(FSA)foralltheprojectswithaccesstofuelth
captivemines,longtermfuelsupplyagreementsandmemorandumofunderstanding(MoU)with
mineral development corporations (SMDC). Thus, unlike others KSK does not have to depende
imported coal to meet its requirement. These capacity additions augur well for the revenue
earningsofthecompany.Financialclosureaswellasalltheclearancesareinplaceforalltheproj
8/8/2019 V S Lignite
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Initiatin
Covera e
ble4:Statusofprojects
atusofpowerprojects
oject MW Land Water Fuel Offtake
Government
approvals
EPC
awarded
Financial
closure Construc
Lignite* 135
asmetaExpansion
43
ardhaWarora# 540
ardha,ChhattisgarhPhaseI 1800
ardha,ChhattisgarhPhaseII 1800 x rce:Company,NetworthResearch
Strongrevenuesandearningsvisibility
Outsourced'captivepowerproducer
KSKhasaveryuniquebusinessmodelwhereinitsetsuppowerplantsforvariousindustrialcusto
likeLafargeIndiaPvtLtd,ZuariCementLtdandVirajProfilesLtd. (Theonlyotherplayerinthisseg
isOPGdevelopers).KSKsetsuptheplants incollaborationwiththeuser(s).Itsmajorclients inve
least26%intheequityoftheplantspecificSPVthoughKSKretains100%economicinterest.TheforsuchprojectsisoutofregulatorypurviewenablingKSKtoearngoodreturns(RoIE3540%)and
resultsinassuredpowerofftake.Also,thecredibilityoftheindustrialcustomersisbetterthanthe
electricityboards.Besides,ifthecaptivecustomerdefersthepowerpurchaseKSKhastherightt
thesame in theshort term markets.Thecapacity in thissegment isestimated to increase from
current144MWto882MWinFY11itself.
Astheplantsaresetupspecifically forcaptiveconsumers,bulkofthepower isalreadytiedup
themunder longtermPPA's.Longtermtoshorttermmix isat95:5withtheexceptionofFY11
wherethemix is50:50.Defermentofpowerofftakebythebulkcustomer from itsWardhaWa
planthas ledtoavailabilityof250MW(FY11E)to300MW(FY12FY14E)ofpowertobesoldon
term basis. The company has entered into short term contract with Maharashtra State Distrib
Company(MSDC)(FY11E)aswellasReliancePower(FY1214E)forthesupplyofpoweratanattra
rateof
Rs.
5/kwh,
thus
providing
significant
boost
to
its
revenues.
Fuelarrangement is inplacewithcoal linkagesfromCoal IndiaLtdforcoalbasedplants.SaiReg
has fuelsupplyarrangementwithGAILwhileVSLignitewillsource fuel fromcaptivemineatG
Rajasthan.Alltheprojectsareinapositiontomeettheirfuelrequirementsthusreducingdepend
onanyotherexternalsourceoffuel.
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Initiatin
Covera e
ble5:ProjectProfile:Captiveplants
oject Arasmeta SaiRegency Sitapuram VSLigniteArsmetaexpansion
WardhaWa
pacityMW 43 58 43 135 43 (135*4)
cation Chhattisgarh TamilNadu AndhraPradesh Rajasthan Chhattisgarh Maharasht
OC
Nov06
Sep
07
Mar
08
Mar
10
Jul
10
Unit
IApril
2UnitIIJuly2
UnitIIIOct2UnitIVJan2
urceoffuelSouthEasterncoal
fields+openmarket
GAILSingareni
Collieries+openmarket
GurhaLignite,captive
SouthEasterncoalfields
Westerncoal
elsupplygreement
0.24milliontonne 268000scm 0.27milliontonne
elrequired@PLFmntonnespa)
0.26@85%PLF259000scm@85%
PLF0.32@90%PLF 1@80%PLF 0.26@85%PLF 2.7@80%
CV 2834Kcal/Kg 8796Kcal/SCM 3229Kcal/Kg 2800Kcal/kg 2834Kcal/Kg 4725Kcal/
R 3432Kcal/Kwh 2186Kcal/Kwh 2135Kcal/Kwh 2677Kcal/Kwh 3432Kcal/Kwh 2335Kcal/K
A/ShorttermLafarge(CaptiveCustomer)/CSEB
MultipleCaptiveCustomers,Third
PartySaleTNEB
ZuariCement,ShriVishnuCements,ThirdPartySale
MultipleCaptiveCustomers,Third
PartySaleRDPPC
Lafarge(CaptiveCustomer)17
MW/thirdpartysale
MultipleCapCustomers,T
PartySale MS
Atariff
ForLafargeFixedCost+VC(FuelCost
escalationispassthru),
ForcaptiveconsumersFixed
Cost+VC(FuelCostescalationispass
thru),
ForcaptiveconsumersFixed
Cost+VC(FuelCostescalationispass
thru),
MultipleCapConsumersFixedTariffofRs.2.85;
ForLafargeFixedCost+VC(Fuel
Costescalationispassthru),
MultipleCConsumers(
MW)Rs.3.2
AvgTariff:Rs.3.33 AvgTariff:Rs.3.93 AvgTariff:Rs.4.46ThirdPartySaletoRDPCCRs
6.5;
AvgTariff:Rs.3.62BalThirdParty
Rs.5/kWh
ebt:Equity 70.30 75.25 70.30 75.25 80.20 80.20
oIE(%)FY10 36 372 46 42# 28# 322#
*SaletoMSDCLinFY11,ReliancepowerfromFY12FY14
#FY12Projected
erationalon31March2010
nitIandUnitIIof135MWeachalreadyonstream
IE,Returnoninvestedequity(returnon projectequity)
IPP:TheInflexionPoint
With largecement, steeland othercaptiveplayers increasinglymoving intopowergenerationsegmenton
own,KSKwebelievecouldpossiblysee lesserdemand in itscorebusinesssegment.Thusthecompany'smo
setupitsownpowerplantispositiveforthecompany.
Thesinglelarge3.6GWprojectatChhattisgarhwillbeKSK'sfirstIPPasthecompanymovesawayfromitstradit
model.Phase I (1800MW)of theproject is estimated tostartproduction inFY14,whilePhase IIwillcomm
production in the following year. With this the total capacity of KSK will move from 862MW to 4.4GW la
foundationforitssignificantgrowth.Theprojecthasbeenfundedwithadebt:equityof75:25withthedebtpo
being completely tied up and the equity portion to be funded with the IPO proceeds (Rs 8978 millions)
proceeds(Rs5159millions)andinternalaccruals.
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8/8/2019 V S Lignite
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Initiatin
Covera e
RevenueandPATGrowthinPowergeneration
Exhibit7:RevenueGrowth
0
500
1000
1500
2000
2500
3000
2008 2009 2010 2011E 2012E
(Rs.inCr) Revenues
Source:Company,NetworthResearch
Exhibit8:PATGrowth
0
100
200
300
400
500
600
700
2008 2009 2010 2011E 2012E
(RsinCr) PAT
Source:Company,NetworthResearchWithfuelarrangementsatcompetitiveratesandpowerpurchaseagreementsinplaceforallprojectsKSKh
verystrongrevenueandearningsvisibilityfromthepowergenerationsegment.Revenuesandearningsbot
estimatedtogrowataCAGRofmorethan190%intheFY10FY12period.ROEfromthesegmentisestimat
beat18% inFY12EwhilethecompanyROE isprojectedat22%.With thecommissioningofthe3.6GW I
FY15E,KSKisprojectedtoearnaROEinexcessof30%.
8/8/2019 V S Lignite
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Initiatin
Covera e
Table9:ProjectEconomics
Projectprofile
VSLignite Arasmetaexpansion WardhaWarora WardhaChhattisg
Yearoffullproduction FY11 FY12 FY12 FY16
PLF(%) 75 85 85 85
Blendedtariff(Rs/kwh) 4.1 4.02 4.88 2.9
PPA 2.85 3.06 3.4 2.5
Merchant 6.5* 4.5 5.5* 3.5
Totalsalesmillionunits 789 288 3639 24929
PPA 518 96 1011 24636
Merchant 272 192 2628 293
All incostofgeneration(Rs/kwh) 1.7 2.4 1.9 2.5
Netmargin(Rs/kwh) 2.4 1.7 3.0 0.4
NetProfit(Rscr) 54 3.6 523 1176
RoIE(%) 146 28 322
*Tiedupinmediumtermcontract
Source:Company,NetworthResearchKeyassumptions:
Steadyutilizationratehasbeenassumedforeachproject
Merchant rates have been projected at 3.5/kwh with the 10 year median at 4.2/kwh for all the projects u
otherwisestated
Fuelcosthasbeenescalatedat5%p.a
TaxhasbeentakenatMATrateof20%foralltheprojects
Project
development
segment
to
lend
support
to
bottom
line
KSKearnsconsultationfeesforsettinguppowerplantswhichisshownasprojectdevelopmentfees(PDF).Thi
is2%oftheprojectcostand ispaidastheprojectattainsvariousmilestones.InFY10,PDFcomprised42%o
revenues but 65 % of the PAT. It earned EBIDTA margins of 87% and PAT margins of 60%. Thus, this seg
providessignificantboosttotheearningsofthecompany.
RevenuefromthissegmentisestimatedtogrowataCAGRof76%whiletheearningsareestimatedtogrow
CAGRof80%intheFY10FY12Eperiod.EBIDTAaswellasPATmarginsareprojectedtoremainfirmatthecu
levels.
8/8/2019 V S Lignite
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Initiatin
Covera e
RevenueandPATGrowthinPDF
Exhibit10:Revenue
0
100
200
300
400
500
600
700
2008 2009 2010 2011E 2012E
(RsinCr.)
Source:Company,NetworthResearch
Exhibit11:PATGrowth
0
50
100
150
200
250
300
350
400
450
2008 2009 2010 2011E 2012E
(RsinCr)
Source:Company,NetworthResearchHowever,
going
forward
the
revenues
from
this
segment
is
estimated
to
taper
down.
As
all
the
power
pro
are near to their completion revenue accretion from this segment is likely to come down (as witnesse
Q1FY11).WiththeexceptionofArasmetaexpansionandtheChhattisgarhplant,KSKhasbookedPDFfora
otherprojects.AsChhattisgarhplantbeginsoperationsinFY14E,revenuesfromthissegmentwillcomedow
onlycorporatesupportfees.Nonethelessthissegment isprojectedtocontinueto lendsupporttothebot
line.InFY12E,PDFisestimatedtocontribute21%oftherevenuesbut40%ofPAT.
Giventhevisibilityoflowercashflowfromthissegmentgoingforward,wehavevaluedthissegmentusing
rather thananyothermetric.Wehaveprojected free cash flow toequity from thissegment for thenex
yearsandthenconsolidateditwiththefreecashflowsfrompowergenerationtoarriveatFCFEforthefirm.
8/8/2019 V S Lignite
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Initiatin
Covera e
Exhibit12:RevenueMixPDFandPowerGeneration
0
10
20
30
40
50
60
7080
90
100
2008 2009 2010 2011E 2012E
%
PDF Powergeneration
Source:Company,NetworthResearch
Exhibit13:PATMix
0
10
20
30
40
50
60
70
80
90
100
2008 2009 2010 2011E 2012E
%
PDF Powergeneration
Source:Company,NetworthResearch
Valuations
WehavevaluedKSKonSOTPbasisvaluingitsprojectdevelopmentandpowergenerationbusiness.Wehave
FCFE model by estimating project free cash flow to equity for project development segment and all the p
projectsforthenext10yearsassumingacostofequityof15.3%andterminalgrowthrateof5%.Thesame
beenconsolidatedtoarriveatthefreecashflowtothefirm.Afteradjustingforworkingcapitalchangesand
currentcashbalanceandinvestments,thevalueforthecompanyhasbeenderived.Basedonthevaluations,t
priceforKSKstandsat214/share.
8/8/2019 V S Lignite
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Initiatin
Covera e
Table14:Valuation
SOTPValuations
FY11E FY12E FY13E FY14E FY15ETermin
Value
FCFE(Rscr)*
PowerGeneration
Arasmeta 4 6 4 13 13
SaiRegency 33 37 41 43 45
Sitapuram 5 2 1 2 23
VSLignite 39 0 11 20 31
Arasmetaexp 0 3 5 9 11
WardhaWarora 217 457 353 169 145
WardhaChhattisgarh 2799 2261 2353 1079 2160
Projectdevelopment 168 105 586 700 45
Total
2910
2849
3334
141
1869
Workingcapitalchanges 341 338 210 311 907
Total 2569 2510 3124 452 2776 1771
DCF 67887
noofshares 373
Price/Share 182
Add:Cash/investments 11975
Price/share
214
*Afteradjustingnetchangesindebtfromthefreecashflow(PAT+Dep)
PotentialUpside
Windenergyinitiative
InFY10,thecompanyforayed intotherenewableenergysegmentwiththeacquisitionofBahurPowerCom
PrivateLtd.having52MWofwindenergycapacity.Ourcurrentvaluedoesnotreflecttheearningspotential
thisplant.Besides,thecompanyproposestoaugmentitscapacityinthissegmentthroughacquisitionofaddit
GreenfieldandBrownfieldopportunities.
Hydropowerproject
KSK Dibbin Power project is a 130 MW Run of River hydro power project on the Kameng basin in Arun
Pradesh. Land acquisition deposit has been paid and the environment clearance process is currently unde
thereafterbidmechanismforselectionofEPCcontractorwillbeundertaken.AftersubmissionofaDetailedPr
Report,clearancehasbeenobtainedtosetup120MWplantatthelocation.
8/8/2019 V S Lignite
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Initiatin
Covera e
Devil'sadvocate:FallinPLFrate
Thekeyrisktovaluationstemsfromfall inPLFrates.Asthecompanyhasa lowershareofshorttermcontr
changesinmerchantratesdonotinfluencethevaluationsmuch.Alsocoalcostbeingapassthroughthecomp
valuationisprotectedagainstitsvolatility.HoweverthecompanyismostsensitivetochangesinthePLFrate.
dipinPLFbringsthecompany'svaluedowntoRs.177/share.(MedianPLFhasbeenassumedat85%)
Relativevaluation
CompanyShare
Price
Market
cap(Rs
cr)
2year
EBIDTA
growth
*(%)
2Year
PAT
growth*
(%)
P/BV ROE
FY10 FY11E FY12E FY10 FY11E FY
KSK 162 5999 511 382 2.3 2.4 1.8 7.0 12.0 2
NTPC 196 1,61,817 40.6 37 2.6 2.3 2.1 14.9 14.3 1
NHPC 31 38,378 25.3 16.5 1.5 1.4 1.4 7.6 6.6 7
TataPower 1269 30,114 31 30.97 2.7 2.4 2.1 15.1 15.0 1
Reliance
Power
158
37,845
0
0
2.7
2.5
2.4
3.9
3.8
3AdaniPower 135 29,386 1512 1389 5.0 4.5 3.2 5.9 14.4 3
TorrentPower 333 15,753 53 37 4.4 3.3 2.7 21.0 23.5 2
LancoInfratech 71 17,131 231 117 4.9 3.6 2.8 17.4 22.0 2
*FY12EoverFY10Source:Bloomberg
CompanyBackground:
KSK Energy Ventures Ltd. (KSKEVL) is a power project development company that caters primarily to
requirements of captive consumers. The promoter company is KSK Energy Ltd. (incorporated and registere
Mauritius)whichinturnisawhollyownedsubsidiaryofKSKPowerVentureplc(anIsleofManincorporatede
listed
on
the
London
Stock
Exchange).
KSK
is
into
developing
and
operating
power
plants
for
industrial
and
sownedconsumers.Itthusearnsprojectdevelopmentfeesaswellasrevenuesfromsaleofpowertotheindu
consumers.Thecompanywasestablishedin2001tocapitalizeontheemergingopportunitiesintheIndianp
sector and focus on developing, operating and maintaining power projects. KSKEVL supplies power throu
combination of long term and short term Power Purchase Agreements (PPAs) to industrial and stateow
procurersandconsumersinIndia.Itcurrentlyhasthreeprojectsoperationalwithatotalcapacityof144MW.
8/8/2019 V S Lignite
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Initiatin
Covera e
CorporateStructure
Companyevolution
2001 KSKEVLisincorporated
2004 MemorandumofunderstandingwithLafargeforsettingup43MWofpowercapacity
2005 SecuresallocationoftheGurhaEastLigniteblocktoVSLignitefromGovernmentofIndia
ShareholdersAgreementwithZuaricementsforsetupof 43MWcaptivepowerplant
Entiredebttieupof 3powerprojectsofArasmeta,SaiRegency&Sitapuramachieve
2006 Arasmetaplantsynchronizedwiththegrid
CollaborativeMOUswithSMDCs(GMDC,MPSMCandPIPDIC)forlongtermcoalsupplyarrangementssign
KSKPromoterGroupCompanyKSKPowerVenturplclistsonAIMMarketofLondonStockExchange
Execution of a coal supply and investment agreement with GMDC for supplies to proposed 1800
Chattisgarhproject
Lafargeconfirmsrequestforsetupofadditional43MW powerplantexpansionunit
EffortonWardhaWarora540MWpowerplantcommences
2007 Sairegencypowerplantsynchronizedwiththegrid
Sitapurampowerplantsynchronizedwiththegrid
2008 EffortonWardhaChattisgarh1800MWpowerplantcommenceswithsignificantdebttieup
KSKEnergyVenturescompleteitsPreIPOplacementaswellasInitialpublicofferingofShares,raisingap
US$300mn
KSKoffered346millionsharesatapriceofRs.240/shareraisingRs.830cr.
ItraisedRs415crbyplacingsharespreIPOwhichweresubscribedbyMacquarieBank,TreeLineAsiaMa
Fund(Singapore)PteLtd,GECapitalInternational(Mauritius)AxisBank,IDFCandUniversitiesSuperannua
SchemeLtd
KSKPower
Venture
plc
stake
dilutes
down
to
55.25%.
KSK
Energy
stock
starts
trading
on
NSE/BSE
2009Coal supply agreement entered with GIDC for 1800 MW Power project in Chattisgarh, Wardha Chattis
capacityenhancedto3600MWinsamelocation
GroupachievesproductionoftheGurhaEastligniteblockofVSLignitepowerplant
KSKEVLraisesRs.515crthroughQIPissueatRs.194/share
2010 VSLignitestartsproductionfrom31March2010
UnitIandIIfromtheWardhaWaroraplatcommenceoperation
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Initiatin
Covera e
BusinessModel
Thecompanysetsupplantunderthe(group)captiveprinciple incollaborationwiththecaptivecustomers.
planttobequalifiedascaptiveplant,theElectricityAct2003requirestheusersto
contribute26%oftheequity
offtakeatleast51%ofthepower
ThepropositionworksbothforthecaptiveuseraswellasKSK.
Fortheindustrialconsumers,
Ithasreliablesupplyofpowerasthepowersupplyfromgridiserratic
Freedomtofocusonitscorebusinessactivity
Significantloweringofinvestmentsinsettinguppowergenerationcapacity
ForKSK,
EarnsreturnshigherthantraditionalROEprojects
Assuredofftake
Bettercreditworthinessgiventhebettercredibilityoftheindustrialconsumer
KSKsetsupprojectspecificSPV'swhereboth KSKand the industrial customercontribute towardstheeq
thusreducingKSK'sequityinvestment.Besidesthecontributionofindustrialcustomersistypicallythrough
A shares or preference shares which have a dividend cap (0.01%0.1% of face value). KSK thus retains 1
economicinterest
ProjectProfile
43MWArasmetapowerplant
Arasmetapowerplant issetuptomeetthecaptiverequirementofLafarge India ltdand issetup intheLa
complexatArasmeta,Chhattisgarh. It issetupas51:49JVwithKSKholding51%.KSKcommissionedthepla
November 2006,20months after receiving themandate from Lafarge. It has fuel supply agreement withS
EasterncoalfieldsofgradeFcoal.Theplanthasbeenoperatingat85%PLF.~245unitsaresoldtoLafarge.InF
theplantsold290MUatanaveragetariffofRs.3.29/unit
58MWSaiRegencypowerplant
SaiRegencyisagroupcaptivepowerplant(74%ownedbyKSK)cateringtomultipleindustrialclients.SaiReg
CeramicswasallocatedgaslinkagefromGAILforitsceramicsdivision.However,whenthecompanywasnotab
usethisgas,KSKapproachedSaiwithaproposaltosetupapowerplantfuelledbythisgas.Accordingly,itobta
funding from multiple industrial consumers in the form of equity and preference capital (with KSK holding
equity stake) to develop a 58MW power plant at Kalugurani, Tamil Nadu. Natural gas for the plant is sou
throughGAILunderafuelsupplyagreement.
Asthisisa'groupcaptive'capacity,almostallofthepowerproducedissoldtoindustrialcustomers.Thesurp
sold to the TamilNaduStateElectricity Board (TNEB)under the shortterm PPA route. Theplant uses the
transmissionnetworkundertheopenaccessregimefortransmittingpowertothemultiplecustomers.Thep
O&MhasbeenoutsourcedtoOperationalEnergyGroup.Powerissoldtocaptivecustomersonasinglepart
withfuelcostbeingapassthrough.
InFY10,theplantrecordeda70%PLF.Itsold337MUatanaveragetariffofRs.3.9/unit.
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Keyofftakers
ChemplastSanmar 22MW
PrecotMeridian 3MW
BrakesIndia 10MW
OrchidChemicals 6MW
LakshmiMills 7MW
JagannathTextiles 6MW
ElForge 2MW
Harshini 1MW
LightAlloysProductsLimites 1MW
RegencyCeramics 0.1MW
Source:Company,NetworthResearch
43MWSitapuramPowerplant
ZuariCements(ZCL)setupa51:49JVwithKSK(KSKholding49%stake)todevelopa43MWpowerplantto
the power requirements of its cement plants. Additionally, the power plant is responsible for acting as a
managerfor
ZCL.
Please
note
that
ZCL
retains
acall
option
on
buying
out
KSK's
49%
stake
at
book
value
in
FY18
yearsafterplantcommissioning. (Inourvaluationswehaveassumedthe JVuntilFY18).Thecoal linkagefo
plantisfromSingareniCollieriescoalfields.
Beingcaptiveinnature,~260MUissoldtoZCLonatakeorpaybasis,whilethesurplusissoldtoAndhraPra
Power Procurement Centre (APPC) under the short term PPA route. The plant utilizes the state transmi
networkundertheopenaccessregimefortransmittingpower.Also,theentirewaterrequirementforthepla
sourcedfromtheKrishnaRiver located4kmaway.PlantO&MhasbeenoutsourcedtoEnmasO&MServices.
InFY10,theplantachieved86%PLF,sold290MUatanaveragetariffofRs.4.28/unit
135MWVSLignitepowerplant
KSKset
up
a135MW
lignite
based
group
captive
power
plant
in
Bikaner,
Rajasthan,
to
cater
to
power
requirem
ofmultipleindustrialcustomers.KSKholds74%equityintheSPV,withtherestsubscribedbyindustrialcustom
KSKhasbeenallotted ligniteblocksatGurha inJuly2005andLunsara inFebruary2007.Thecompany inten
uselignitefromtheseminestorunthepowerplant.Intheinitialyears,thecompanyintendstosourcelignite
theGurhaminesonly.
Asthecapacityisa'groupcaptive'plant,almostallofitspowerproductionwouldbesoldtoindustrialcustom
Thesurplus isexpectedtobesoldtotheRajasthanPowerProcurementCentre(RPPC)undertheshortterm
route. The plant would be connected to the state transmission network under the openaccess regime
transmittingpowertomultiplecustomers.Theentirewaterrequirementfortheplant issourcedfromthe I
GandhiNaharCanal.
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Initiatin
Covera e
LafargeIndiaisLargestOfftaker
RelianceChemotex 8MW
JKTyre 6MW
JKCement 15MW
JKLakshmi 21MW
Suzuki 20MW
Nahar 17MW
MaharajaSriUmaidMills 6MW
ModernInsulator 4MW
LafargeIndia 26MW
BalkrishnaTyres 6MW
APMIndustries 6MW
Source:Company,NetworthResearch
540MWWardhaWaroraPlant
The power plant is located at Warora Growth Centre in Chandrapur District of Maharashtra. The plant
aggregatecapacityof540MW,comprisingfourunitsof135MWeachandisbeingsetupthroughanSPV,Wa
PowerCompanyLimited.Theplantismakinggoodprogresswithtwounitsalreadyoperational.
Theplantwouldsupplyto10captiveusers,amongwhichVirajProfile(steelcompany)wouldofftake~50%o
poweratapriceofRs2.58/unit.Thebalance9wouldcollectivelyofftake200MWatvaryingprices.Coalfo
plant is tobesourced fromWesternCoalfieldLimited (WCL).ThePPAalsoallows thirdpartysales, inca
surpluspower(lowerofftake).
Viraj thekeyofftakerhasindicateditsinabilitytoofftakepower.KSKhascontractedthesametoMahara
StateDistributioncompanyforFY11andtoReliancepowerforFY12FY14period.
VirajProfiles
is
the
largest
offtaker
Viraj 270
Spentex 35
SonaAlloys 15
RLSteels 15
Graphite 14
MUSCO 35
MahindraForgings 5
AirLiquide 6
FacorSteels 11
MahindraHoliday 10
Source:Company,NetworthResearch43MWArasmetaExpansionPowerPlant
It is captive plant to cater to additional demand from Lafarge's Sonadih and upcoming Chhattisgarh units
plannedexpansionofcementunitsatChhattisgarhisexpectedtobecompletedbyFY1315.TheCompanyint
tousetheexistinglinkagefromSouthEasternCoalFieldsLimited(CoalIndia)tomeetthefuelrequirementsfo
expansionproject.Lafargehascontractedtopurchase17MWofpower;therestisavailableforshorttermsale.
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Initiatin
Covera e
3600MWWardhaChhattisgarh
The3600MWpowerplantatChhattisgarhwillbeKSKEVL'sfirstIPP.ItshowcasesKSK'sabilitytosourcelowcos
onasustainedbasis.IthassignedadefinitiveagreementwithGujaratMineralDevelopmentCorporation(Mor
andGIDC(GoaIndustrialDevelopmentCorporation,GarePalmaIII)whohavebeenawardedcoalminesadjace
theplantsite.Aspertheagreement,thesetwocoalmines,wouldsupplycoaltotheprojectonacostplusb
andin
return
buy
part
of
the
power
generation
at
apredetermined
price.
Total cost of this project is Rs161bn, and is proposed to be financed through a D/E mix of 75:25. The Wa
Chhattisgarh theprojectSPV(100%ownedbyKSK)hasachievedfinancialclosure.Thefuelagreementgives
tobothGMDCandGIDCto investupto26%equity inthepowerplant. Ifexercised, itwould lowerKSK'se
contribution in theproject.KSKhasawardedtheEPCcontractofentireplant toSEPCO, the largestChinese
contractor.Asper theexecution schedule, unit Iof the plant is scheduled tocommissionby4QFY12with e
subsequentunitat4monthsintervalandtheentireplantby3QFY14(Wehaveassumedadelayofoneyeari
valuation). To counter any delays in mine development by the government mining companies, KSK has sec
taperingcoallinkages.GMDCisthelargestofftakerinPhaseIwith1010MW.
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Initiatin
Covera e
FinancialInformation
P&Lconsolidated(Rscr) 2008 2009 2010 2011E 20
Incomefromoperations
ProjectDevelopment 50 137 212 308
Powergeneration
190
245
293
1709
2
less:Intersegment 1 1 3 0
TotalIncome 239 381 502 2017 3
Growth(%) 59 32 301
Expenditure
ProjectDevelopment 26 19 28 39
Powergeneration 118 145 171 770 1
less:Intersegment 1 1 2 0
TotalExpenditure 142 163 197 809 1
PBDIT
97
218
306
1208
1Growth(%) 125 40 295
OtherIncome 119 112 66 5
Depreciation 22 25 26 200
PBIT 193 306 345 1013 1
Interest 63 122 125 445
PBT 131 184 221 568 1
Exceptionalitems 0 6 0 0
PBT 131 190 221 568 1
Taxexpense 22 44 28 119
PAT 109 145 193 449 1
MinorityInterest 6 10 16 76
Net
profit
after
taxation
and
minority
interest
102
136
177
373
Growth(%) 33 30 111
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Initiatin
Covera e
BalanceSheet
SOURCESOFFUND (Rscr) 2008 2009 2010 2011E 201
Shareholder'sFunds
a)ShareCapital 294 346 373 373 3
b)ReservesandSurplus 343 1636 2289 2664 35
Totalnetworth
637
1982
2662
3037
38
Minorityinterest 107 165 195 271 4
Loans 1252 2239 5339 8011 104
DeferredTaxLiability 4 6 12 0
2000 4392 8208 11319 147
APPLICATIONOFFUNDS
FixedAssets
a)GrossBlock 514 614 1660 3942 40
Less:AccumulatedDepreciation 24 51 82 282 4
NetBlock 491 563 1579 3660 36
b)CapitalWorkinprogress 943 2496 5121 6388 97
Total 1434 3059 6700 10048 133
Goodwill 198 198 198 198 1
Total 1632 3257 6898 10246 135
Investments 85 76 3 0
CurrentAssets,
Loans
and
Advances
a)Inventories 8 15 49 221 3
b)SundryDebtors 32 41 45 221 3
c)Cashandbalances 416 1107 1194 1299 11
d)othercurrentassets 0 49 53 233 3
e)Loansandadvances 239 410 413 404 6
695 1622 1755 2379 28
Less:CurrentLiabilitiesandProvisions
a)CurrentLiabilities 410 548 441 1278 15
c)Provisions 2 15 7 28
412
563
448
1305
16
NetCurrentAssets 283 1059 1306 1073 12
2000 4392 8208 11319 147
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Initiatin
Covera e
CashFlow
CashFlowStatement(Rscr) 2008 2009 2010 2011E 20
Y/E
CashandCashEquivalents(OpeningBal.) 253 416 1107 1196 1
NetCashfromOperatingActivities 221 147 118 1427 1
NetCash
(used
in)/from
Investing
Activities
(1824)
(1444)
(3230)
(3544)
(34
NetCash(Usedin)/fromFinancingActivities 1765 1945 3200 2228 2
NetchangesinCashandCashEquivalents 162 649 89 111 (
CashandCashEquivalents(ClosingBal.) 416 1064 1196 1299 1
Ratios
P&LRatios(%) 2008 2009 2010 2011E 201
EBITDAmargins 90.3 86.7 73.9 60.1 59
PBTmargins 54.7 48.2 44.0 28.2 40
Adj.
PAT
margins
42.9
35.6
35.2
18.5
27Interestcoverage 1.5 1.8 2.5 2.7 4
BalanceSheetRatios
LT.Debt/Equity 2.0 1.1 2.0 2.6 2
TotalDebt/Equity 2.4 0.5 0.9 0.8 0
CrossRatios
AssetTurnover 0.12 0.09 0.06 0.18 0.
InentoryPayable(Days) 11.6 14.3 35.7 40.0 40
DebtorsReceivable(Days) 49.5 39.3 32.6 40.0 40
Payables(Days) 1054.7 1227.6 819.3 576.6 448
ROE 16% 7% 7% 12% 2
ROCE 10% 7% 4% 9% 1
Pershare
EPS 5.7 4.1 5.0 10.0 22
BV/PS 41.8 64.4 80.6 88.8 115
Cash/PS 23.2 33.1 33.6 34.8 30
8/8/2019 V S Lignite
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NetworthResearch:Email [email protected]
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KeytoNETWORTHInvestmentRankings
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