Post on 04-Jun-2018
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March 23, 2010
ICICIdirect.com|Equity Research
nitiating Coverage
On a firm footing
Jaiprakash Power Ventures Ltd (JPVL), a part of the $7 billion Jaypeegroup, is the result of amalgamation between the erstwhile JaiprakashHydro Power (JHPL) and Jaiprakash Power Ventures (JPVL). Thecombined entity has a successful track record of operating 700 MW ofhydro projects - Baspa-II (300 MW) commissioned in 2003 and VishnuPrayag (400 MW) commissioned in 2006. In FY09, the erstwhile JHPLgenerated 1,291.9 million units (MU) while JPVL generated 2,033.3 MUvis--vis 1,280.8 MU and 1,871.0 MU in FY08, respectively. Theconglomerate entity is aiming to achieve ~13,500 MW of installedcapacity by FY19E with a diversified fuel mix. JPVL is expected tocommand an optimal 60:40 thermal-hydro mix. The upcoming hydroproject at Karcham Wangtoo (1,000 MW) is well on track to achieve the
commissioning six months ahead of schedule in May 2011. The parentcompany (JAL) has demonstrated significant execution strengthclubbed with better operational performance at existing projects. Thus,we are initiating coverage on the stock with an ADD rating.
Total ~16 fold growth in installed capacity over the next six years
JPVL has an installed capacity of 700 MW as at the end of December2009. The company has an ambitious growth plan and is targeting~11,050 MW by the end of FY16E. Total ~1,500 MW is expected byFY12E. JPVL is diversifying into other fuel mix with the first thermal plantBina I expected in the second half of FY12.
Superior asset quality getting reflected in operational numbers
JPVL is generating at an implied plant load factor (PLF) of ~100% in thepeak flow season. This is far in excess of the overall PLF generated byhydro-based capacities in India. For FY09, the overall Indian hydrogeneration is operating at an implied PLF of ~34.1% and JPVL iscommanding a much superior implied PLF of ~54.6%.
ValuationsAt the CMP of Rs 67, the stock offers ~6.2% upside potential. JPVL has700 MW of plants operational, which comprises Rs 17 per share and~24% in overall value. Expansion plans form the remaining portion ofoverall value. The demonstrated capability of parent company (JAL)renders significant comfort to upcoming expansion plans. Thus, we
initiate coverage on the stock with ADDrating and target price of Rs 71.Exhibit 1:Key Financials(Rs Crore) FY08 FY09 FY10E FY11E FY12E
Net Sales 307.6 288.9 704.8 688.0 2181.7
EBITDA 275.7 273.3 647.9 664.9 2098.2
Net Profit 214.9 142.9 221.3 270.9 863.0
PE (x) 66.3 99.8 64.4 52.6 16.5
Target PE (x) 69.7 104.8 67.6 55.3 17.3
EV/EBITDA (x) 65.5 66.1 27.9 27.2 8.6
P/BV (x) 3.2 3.1 4.3 3.9 3.3
RoNW (%) 20.9 13.3 6.6 7.5 15.1
RoCE (%) 12.2 11.8 10.7 5.5 12.0
Source: Company, ICICIdirect.com Research
Jaiprakash Power Ventures Ltd (JAIHYD)
Rs 67
ting Matrix
ting : Add
rget : Rs 71
rget Period : 12-15 months
tential Upside : 6%
Y Growth (%)
FY09 FY10E FY11E FY12E
tal Revenue -1.4 137.6 2.7 236.3
ITDA -0.9 137.1 2.6 220.1
t Profit -33.0 56.1 22.4 145.5
ock Data
arket Capitalisation Rs 14251 Crore
bt (FY10E) Rs 5087 Crore
sh (FY10E) Rs 1280 Crore
Rs 18058 Crore
week H/L 105/24
uity capital Rs 210 Crore
ce value Rs 10
F Holding (%) 3.3
Holding (%) 3.3
mparative return matrix (%)
ock return (%) 1M 3M 6M 12M
VL 1.0 -7.0 -18.9 146.1
HPC -2.2 -1.6 -11.9 NA
ta Power 8.4 1.9 2.1 104.2
TPC 0.0 -2.8 -3.0 15.0 ice movement (Stock vs. Nifty)
0
20
40
60
80
100
Mar-10 Jan-10 Nov-09 Sep-09 Aug-09
(InRs)
1500
2500
3500
4500
5500
(InUnits)
JPVL (L.H.S) Nifty (R.H.S)
nalysts name
itesh Bhanot
tesh.bhanot@icicisecurities.com
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Company Background
Jaiprakash Power Ventures Ltd (JPVL), part of the $7-billion JaypeeGroup, was formed as a result of amalgamation between the erstwhile
Jaiprakash Hydro Power (JHPL) and another group company JaiprakashPower Ventures (JPVL). For pre and post merger amalgamation schemerefer to annexure. JPVL is the largest private sector hydropowerproducer with over 700 MW of operational capacity.The erstwhile JHPL was incorporated in 1994 and the company wasoperating the 300 MW Baspa-II hydroelectric project in Kinnaur district ofHimachal Pradesh since 2003. JHPL has acquired another JPVL, anothergroup company, which had 400 MW of operational capacity at theVishnu Prayag facility in Uttarakhand. Subsequently, the conglomerateentity was renamed as JPVL.Both operational plants have sold their power under the long-termofftake arrangements to the respective state government distributionutilities. Both power purchase agreements (PPA) are governed by the
tariff policy of the respective state regulatory commission.Jaypee Associate, the parent company has demonstrated leadership inthe construction of hydropower projects over 2002-2009 with anexecution track record of over ~8,800 MW.
Exhibit 2:Jaiprakash Associates group structure (post amalgamation)
Hydro Power Projects
Transmission Project
Thermal projects
Projects under
implementation
Jaiprakash Associates
(JAL)
Jaiprakash Power Ventures Ltd. (JPVL)
76.3 %
Aruachal Project
(3,200MW)
89.0 %
56.87 %76.0 %
Jaypee Powergrid Ltd
Transmission project
(230 km)
74.0 %
Karcham Wangtoo
JKHCL (1,000MW)
Vishnuprayag
HEP
(400MW)
100.0%
Baspa - II
HEP
(300MW)
100.0%
Bina Project
(1,250MW)
100.0 %
Bara Project
(3,300MW)
100.0 %
Karchana Project
(1,980MW)
100.0 %
Meghalaya Projects
(720MW)
Nigrie Project
(1,320MW)
100.0 %
Source: Company, ICICIdirect.com Research
Share holding pattern (Q3FY10)
Shareholder (%) holding
Promoters 63.3
Institutional investors 6.7
General public 30.0
Promoter & Institutional holding trend (%)
63.3
%
63.3
%
63.3
%
63.3
%
6.7
%
5.0
%
3.7
%
2.6
%
0%
20%
40%
60%
80%
100%
Q3FY10 Q2FY10 Q1FY10 Q4FY09
Promoter Holding Institutional Holding
Projects under implementation
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Investment Rationale
Jaiprakash Power Venture is a rapidly growing organisation with a spateof capacity additions of ~1,500 MW lined up over the next two years. JP
Power Venture is diversifying its fuel mix and is targeting an optimalthermal: hydro mix of 60:40 by 2019. JPVL is likely to route ~38% of theoverall ~13,470 MW under the merchant route. The remaining power willbe routed under the long-term PPA route. The strong pipeline of projectsunder consideration coupled with the demonstrated capability of theJaypee group puts JP Power Ventures in a sweet spot to exploit theopportunities available in the power sector.
Total ~16 fold growth in installed capacity over the next six years
JPVL has an installed capacity of 700 MW as at the end of December2009. The company has an ambitious growth plan and is targeting~11,050 MW by the end of FY16E. Total ~1,500 MW is expected byFY12E. JPVL is diversifying into other fuel mix with the first thermal plant
Bina I expected in the second half of FY12.
Exhibit 3:Break-up of project wise capacity addition over the next six years
700
700
700 2
200
2200 3
520
7570
11050
0
2,000
4,000
6,000
8,000
10,000
12,000
Q1
Q2
Q3
Q4
FY10E
Q1
Q2
Q3
Q4
FY11E
Q1
Q2
Q3
Q4
FY12E
Q1
Q2
Q3
Q4
FY13E
Q1
Q2
Q3
Q4
FY14E
Q1
Q2
Q3
Q4
FY15E
Q1
Q2
Q3
Q4
FY16E
Capacity(MW
)
700 E
E - Existing KW - Karcham Wangtoo B - Bina N - Nigrie BA - Bara K - Karchana LS - Lower Siang
1320 K - I
500 B - I1000 KW
660 N - I
660 K - II
1500 LS - I
1320 BA - II
1980 BA - I
750 B - II
660 N - II
Source: Company, ICICIdirect.com Research
JPVL will derive substantial synergies from the parent company (JAL).JAL is an integrated solutions provider for hydropower project and isexpected to provide EPC services for hydro projects and civil services tothe thermal projects undertaken by JPVL.
Sweet spot for Jaiprakash Power Ventures to exploit
the overall opportunities in the power sector
Total ~16 fold growth in the installed capacity is
expected over the next six years. JPVL will continue
to be among the largest private sector hydropower
companies over the next decade
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Excellent track record of JAL as hydro-electric power (HEP) contractor
Jaiprakash Associate (JAL) is the leader in the construction of multipurpose river valley hydro power projects and has over 40 years ofengineering and construction expertise. JAL has completed ~ 8,840 MWof HEPs over the period from 2002-09. As a contractor, JAL has executedthe largest concrete dam in India Sardar Sarovar (1,450 MW), largest
underground power house in India - Natpha-Jhakri (1,500 MW), largestrock fill dam - Tehri (1,000 MW) and second largest surface power housein India Indira Sagar (1,000 MW).
Exhibit 4:Projects executed by JAL as contractor
Source: Company, ICICIdirect.com Research
JPVL gaining market share in overall hydro generation
JPVL has been able to maintain the run rate for electricity generation atthe operational plants even in lull years. Bad monsoons over the last fewyears have resulted in a drop in the overall hydro generation of India.Thus, JPVL has marginally improved its share of generation in the overallIndia hydro generation scenario.
Exhibit 5:Trend in monthly generation for operational plants
0
150
300
450
600
750
2007
.01.31
2007
.04.30
2007
.07.
31
2007
.10.31
2008
.01.31
2008
.04.30
2008
.07.
31
2008
.10.31
2009
.01.31
2009
.04.30
2009
.07.
31
2009
.10.31
2010
.01.31
Monthlygeneration
Millionunits(MU)
0
1
2
3
4
5
6
(%)
Baspa - II (LHS) Vishnuprayag (LHS) JPVL as % of overall Hydro generation (RHS)
Source: CEA, ICICIdirect.com Research
JAL has executed over 8,800 MW of projects from
2002-2009 with execution of the largest hydropower
projects to its merit
JPVL has been able to maintain the overall
generation run rate and has marginally improved the
share of generation in overall India hydel generation
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Superior asset quality getting reflected in operational numbers
JPVL is generating at an implied PLF of ~100% in the peak flow seasons.This is far in excess of the overall PLF generated by other hydro-basedcapacities. For FY09, the overall India hydro generation has beenoperating at an implied PLF of ~34.1% while JPVL has been operating at amuch superior implied PLF of ~54.6%.
Exhibit 6:Monthly PLFs for JPVL and overall hydro capacity PLF
0
25
50
75
100
125
200
7.01
.31
200
7.04
.30
200
7.07
.31
200
7.10
.31
200
8.01
.31
200
8.04
.30
200
8.07
.31
200
8.10
.31
200
9.01
.31
200
9.04
.30
200
9.07
.31
200
9.10
.31
201
0.01
.31
(%)
Monthly PLF derieved for JPVL Monthly PLF derieved for India hydel capacity
Source: CEA, ICICIdirect.com Research
Existing hydro projects immune from bad monsoons
Existing hydro projects (700 MW) and the upcoming Karcham Wangtoo(1,000 MW) are located on rivers that are fed by melting of glaciers to asignificant extent. These rivers are less dependent on seasonal monsoonsfor their water flow. Hence, the plants will enjoy higher generation even ina year when seasonal monsoons are not up to the mark.
Exhibit 7:Humungous plans for Jaiprakash Power Ventures
Source: Company, ICICIdirect.com Research
PVL is operating at much superior implied PLF
vels of 54.6% in FY09 compared to the overall India
ydro PLF levels of 34.1%
he project portfolio is less dependent on seasonal
onsoons compared to other players. We believe
PVL will qualify for incentives at both operational
ants even after considering a bad monsoon in the
esent year
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One of the most active participants in carbon credits market
JPVL is expected to have three hydropower projects (1,700 MW)operational by FY16E and four thermal power (7,850 MW) projects. Sixout of the seven plants will be eligible for receiving benefit under thecarbon mechanism. The company is an active participant in the carbonmarket. JPVL has been realising income from trade of certificates called
verified emission reductions (VERs) on existing operational plants (700MW). The company is entitled to 2.3 million VERs per annum on theexisting 700 MW project. The realisation from this certificate is close to3.5-4.0 per VER. JPVL has already sold a part of the VERs that is likely toaccrue from existing operational plants over the coming two years.
Exhibit 8:Significant upside expected from the carbon credit market
0
400
800
1200
1600
2000
4/3/2008
6/3/2008
8/3/2008
10/3/2008
12/3/2008
2/3/2009
4/3/2009
6/3/2009
8/3/2009
10/3/2009
12/3/2009
2/3/2010
Rs./CER
Spot price* Assumed price
Source: Company, Bloomberg, ICICIdirect.com Research
* Conversion rate of Rs 60 per Euro is assumed for converting the spot rate of CERs
In addition to VERs, the company is eligible to claim the benefit fromanother certificate called CERs. The management has indicated that
projects will also be eligible for carbon credits on the three projects likelyto come up in the super critical technology. In all, plants will receive 8.15million CERs per annum by FY15E. New projects like Karcham Wangtoo,Nigrie, Bara and Karchana are likely to receive registration from theUNFCCC. CERs are trading at a significant premium compared to VERs.We believe that with the commencement of income from CERs, thecompany will witness a significant boost in operating income. Carbonincome under the present mechanism is expected to grow ~11 folds fromthe present levels of Rs 40 crore in FY10E.
Exhibit 9:Boost in operating income expected from the carbon credit market
8 10 10 10 10 10 1032 27 27 27 27 27 27
251 251 251 251
30 30
9456
0
100
200
300
400
500
FY09 FY10E FY11E FY12E FY13E FY14E FY15E
RsCrore
Baspa Vishnu Prayag Karcham Wangtoo Nigrie Bara Karchana
40 40 40
288318
468
288
Source: Company, ICICIdirect.com Research
A majority of the projects executed by JPVL
encourages the reduction of greenhouse gases. 6Six
out of the seven upcoming projects qualify for the
benefits of carbon credit
Total ~11 fold growth in the income from the
carbon credits business. We have assumed an
average realisation of Rs 750 per CER and ~Rs 210
per VER.
('millions)
Projects Basis VER's CER's
Baspa - II Hydro 1 -
Vishnuprayag Hydro 1.32 -
Karcham Wangtoo Hydro - 3.35
Bina Power Thermal - Subcritical - -
Jaypee Nigrie Thermal - Supercritical - 0.8
Karchana Thermal - Supercritical - 1.5
Bara Thermal - Supercritical - 2.5
Total 2.32 8.15
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Better operational metrics help sustain better RoE
Both operating projects Vishnuprayag and Baspa are required to supply12% of power free of cost to the respective states. For the remaining88%, they have entered into long term off take arrangements withrespective state utilities. Both PPAs of Vishnuprayag and Baspa providefor a return on equity (RoE) of 16%. In addition to the fixed RoE both
projects are receiving benefit from the sale of carbon credits and alsoqualify for incentives under two different clauses :a. On the secondary energy (capped @ 10% of RoE),b. On the plant availability in excess of 90% availability (capped @
2% of RoE for BASPA and capped @ 6.6% of RoE)
Exhibit 10:Calculation of core RoE for BASPA and VishnuprayagBaspa Project
Calculation of Core ROE
Equity invested 460.2
Return on equity @ 16% 73.6
Incentive on secondary generation 21.0
incentive on higher plant availability 9.0
Income from sale of 40% VER's 9.6
Total Return 113.2
Core ROE (%) 25
Vishnuprayag Project
Calculation of Core ROE
Equity invested 505.2
Return on equity @ 16% 80.8
Incentive on secondary generation 10.0
incentive on higher plant availability* 26.3
Income from sale of 100% VER's 27.3
Total Return 144.4
Core ROE (%) 29
Source: Company, ICICIdirect.com Research
* Incentive on higher plant availability has been calculated assuming availability of 98%
Plant availability for Vishnuprayag has been 99.1% in the nine months ended Dec-09 & 98.6% in FY09.
EBITDA to grow more than 4.4 folds in next three years
The installed capacity is expected to reach 2,200 MW by FY12E. Theincremental capacity will boost the overall EBITDA by over four folds inthe next three years. The existing two operational plants (700 MW) willcontribute only ~20.7%of the overall EBITDA by FY13E.
Exhibit 11:Project wise EBITDA trend for JPVL
275.8 277.4 268.3 259.5 250.9
380.0 370.5 360.5 350.8 341.2
907.91,495.6
356.6
763.2
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
FY09 FY10E FY11E FY12E FY13E
RsCrore
Baspa Vishnu Prayag Karcham Wangtoo Bina - I
655.8 647.9 628.9
1,874.7
2,850.8
Source: Company, ICICIdirect.com Research
The existing plants are enjoying a premium core ROE
in the range of 25-29% compared to other industry
players mainly owing to higher incentives and
benefit from the carbon credits market
Incremental installed capacity to give a leg up to the
overall EBITDA for the company
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Portfolio backed by equipment from reputed manufacturers
All existing operational projects and equipment for upcoming projects areplaced with reputed vendors. This provides significant comfort that theplants will be able to achieve the rated output on a sustainable basis. Thereputed names in the business would also ensure the deadlines are met.
Exhibit 12:Reputed vendors short listed for expansion plansProjects Fuel MW
Budgeted
Cost
Cost incurred till Dec -
09
Expected
CoD Vendors to the projects
Baspa Hydro 300 1,545 1,545 Operational VA Tech, Voith & Alstom
Vishnu Prayag Hydro 400 1,720 1,720 Operational Alstom
Under Construction
Jaypee Power Grid Transmission 217 kms 1,000 492 Dec-10
Karcham Wamgtoo Hydro 1,000 7,150 3,381 May-11 VA Tech, Voith & Areva
Bina - I Coal 500 2,753 420 Nov-11 BTG package ordered with BHEL
Nigrie Coal 1,320 8,118 579 Aug-13 BTG package ordered with L&T-MHI
Bara - I Coal 1,980 11,088 257 Aug-14 BTG package ordered with BHEL -Alstom
Karchana - I Coal 1,320 7,392 110 Dec-14
Under Planning
Bina - II Coal 750 4,125 NA Jul-14
Bara - II Coal 1,320 7,392 NA Sep-15
Karchana - II Coal 660 3,696 NA Mar-16
Lower Siang Hydro 2,700 13,500 114 Mar-16
Hirong Hydro 500 2,500 11 Aug-16
Kynshi - II Hydro 450 2,250 2 Aug-16
Umngot - I Hydro 270 1,350 1 Jul-19
Source: Company, ICICIdirect.com Research
Venturing into transmission sector
Jaypee Powergrid, a 74% subsidiary of JPVL, is developing atransmission facility for evacuation of power from the Karcham Wangtooplant. The project is scheduled to achieve completion by September 2010.However, the revenue from the project will start accruing after theKarcham Wangtoo hydro electric power plant gets operational in April2011.
With the new Tariff policy 2009-14, transmission projects will qualify foran RoE of 15.5% instead of 14%. The total cost of the project is Rs 1,000
crore and it will be funded by a debt equity mix of 70:30. JPVL has alreadyincurred Rs 492 crore till December 2009.
JPVL is entering into a new vertical by venturing into
the transmission sector. The company is
establishing a 217 km long transmission network to
evacuate power for its Karcham Wangtoo project
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Sustainable higher PLFs for existing plants
JPVL can sustain an improved operational performance due to thestrategic positioning of operational projects. Both the Baspa andVishnuprayag plants are operating at levels in excess of design energy.The plants qualify for secondary benefit once they operate at a level in
excess of the design energy. Also, the plants were operating at anavailability factor of 99.6% for Baspa and 98.6% for Vishnuprayag. Bothplants qualify for both incentives that are available to the hydropowerprojects. The upcoming projects are also expected to sustain a goodperformance benchmark for the overall industry.
Exhibit 13:Projection for units produced and PLF
131.5
97.81
28.1
1
87.1
129.2
203.3
126.7
191.4
129.3
198.3
129.3
198.3
129.3
198.3
255.5
164
.3
49.256.6
50.0
90.0
0
100
200
300
Baspa
Vishnu
Prayag
Karcham
Wangtoo
Bina
(Kwhunitsincrores)
-50.0
-25.0
0.0
25.0
50.0
75.0
100.0
FY07 FY08 FY09 Till Feb10 FY10E FY11E FY12E PLF (RHS)
Source: Company, CEA, ICICIdirect.com Research
Long-term contracts in business model provides defensive outlook
Total ~61% of the overall expansion capacity (13,470 MW) is tied upunder long-term power purchase agreements (PPA). Total 100% of theexisting 700 MW hydro projects are tied up for offtake arrangementsunder the long-term route. Majority of the upcoming plants also have theflexibility of passing the escalation in fuel cost to the beneficiary.
Exhibit 14:Fuel risk controlled effectively by managing the selling arrangements
Projects MW PPA
Capacity tied
under long
term (%) Tariff Impact
Baspa (Hydro) 300 40+20 100 Regulated returns @ 16% No risk of fuel cost
Vishnu Prayag (Hydro) 400 30+20 100 Regulated returns @ 16% No risk of fuel cost
Under Construction
Jaypee Power Grid (Transmission) Regulated returns @ 15.5% No risk of fuel cost
Karcham Wamgtoo (Hydro) 1000 35+20 80 Regulated returns @ 15.5% No risk of fuel cost
Bina - I 500 25 60* Regulated returns @ 15.5%** Final PPA is expected soon
Nigrie 1320 25 50 Regulated returns @ 15.5%** Captive mines mitigate the fuel risk
Bara - I 1980 25 90 Levelised tariff @ Rs 3.02 per unit Fuel cost escalation is a pass through
Karchana - I 1320 25 90 Levelised tariff @ Rs 2.97 per unit Fuel cost escalation is a pass through
* MOU is signed for 42% of the generation and the company intends to enter into long term arrangements for another 18%
** Assumed
Source: Company, ICICIdirect.com Research
Strategic advantages of locations for hydro plantsand asset profile from reputed vendors also helps
the company in achieving a better operational
performance
Fuel price risk that is mainly a pass through for amajority of projects along with long-term
agreements for power offtake offer a defensive
outlook
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Risks & concerns
Execution riskJaiprakash Power Ventures Ltd (JPVL) has a significant number ofprojects that are at a nascent stage. The company is yet to enter into
definitive EPC contracts for Karchana, projects in Arunachal Pradesh andprojects in Meghalaya. The company will have to encounter the limitationprevalent at the time of placing the final order.
Adverse changes in regulatory regime for projects under long-term PPAAny adverse changes in the regulatory regime may significantly impairthe ability of the company to generate returns. The returns for the Baspaproject are calculated based on the tariff policy of Himachal PradeshElectricity Regulatory Commission (HPERC).
Delays in upcoming projectsHydropower projects typically require long gestation periods. The
completion of the project is also dependent on several factors likerequisite licenses, approvals, permit, natural disasters, labour disputesand adverse weather conditions. The company may be unable tocomplete the projects in time. This, in turn, will lead to cost escalations ofthe projects. Also, for a few thermal projects the company has placedequipment orders with the company that are in process of setting up theirplants in India. The company may face delays on account of vendorsbeing unable to fulfil their equipment order in time. Unforeseen delays inproject commissioning will, hence, hamper the future growth as well.
Operational riskThe generation of energy by the hydro power plant is primarily
dependent on water availability in respective rivers. In case the availabilityof the plant falls below the prescribed norm for any operational year, therevenues will be adversely impacted. In addition, the company will faceoperational challenges in thermal power projects as it has no track recordof operating big thermal power projects.
Dilution riskThe company has a lot of projects under development and the free cashflow may not be enough to fund the expansion plans. The company maylook to raise further capital for funding the expansion plans diluting theexisting capital base of the company.
Merchant tariff riskAt present, JPVL is not operating any capacity under the merchant route.Over the next two years, JPVL is expected to add ~376 MW at KarchamWangtoo and Bina I under the merchant set-up. A large part of theupcoming capex is dependent on internal accruals that the company islikely to generate over the coming years. For our projection purpose, wehave assumed the merchant tariff for hydro power plants are expected atRs 6.11, Rs 5.23 and Rs 4.95 per unit in FY11E, FY12E and FY13E,respectively. Subsequently, we are expecting the rates to correctgradually to Rs 3.75 levels in FY17E. For thermal power plants, we haveassumed Rs 4.75, Rs 4.50 and Rs 4.00 in FY11E, FY12E and FY13E,respectively. Subsequently, we are expecting the rates to correctgradually to Rs 3.40 levels in FY17E. Any volatility in merchant tariffs will
pose a risk to our earnings estimate.
A large number of projects are under the
implementation stage. This exposes the company to
execution risk
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Financials
Topline to receive a leg up from capacity addition
We expect adjusted revenue CAGR of 48% from Rs 716 crore in FY09 to
Rs 3,476
crore in FY13E. The company is expected to commissionanother ~1,500 MW by FY12E. The overall installed capacity will increaseto 2,200 MW. The existing operational capacity of ~700 MW willcontribute only ~19% to the overall topline by FY13E. Total ~375 MWwill be open for trading in the merchant route.
Exhibit 15:Significant visibility of growth in installed capacity adding to the topline
300.8 304.3 296.3 288.6 281.1
415.0 400.5 391.7 383.2 374.9
980.61,625.2
529.3
1,195.0
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
FY09 FY10E FY11E FY12E FY13E
RsCrore
Baspa Vishnu Prayag Karcham Wangtoo Bina - I
715.8 704.8 688.0
2,181.7
3,476.3
Source: Company, ICICIdirect.com Research
EBIDTA margin to contract owing to change in fuel mix
At present, JPVL has ~700 MW of hydro-based operational capacity. TheEBITDA is expected to grow at a CAGR of 44% over the next four yearsfrom Rs 656 crore in FY09 to Rs 2,851 crore in FY13E. Historically, thecompany has been able to operate at EBITDA margins of ~92% in FY09.With the commencement of thermal capacity in FY12E the margins arelikely to contract.
Exhibit 16:Substantial growth in EBITDA expected
655.8 647.9 628.9
1874.7
2850.8
91.6 91.9 91.4
82.0
85.9
0
500
1,000
1,500
2,000
2,500
3,000
FY09 FY10E FY11E FY12E FY13E
RsCrores
75
78
81
84
87
90
93
(%)
EBITDA EBITDA Margins (%)
Source: Company, ICICIdirect.com Research
Substantial growth in topline of over 4.8 folds in four
years on the back of significant increase in installed
capacity
We expect the company to report over 4.3 fold
growth in EBITDA from FY09 to FY13E led by a
spate of capacity additions, which are likely to go
on stream over the next ~24 months
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Balance sheet to double from FY10E to FY12E
The balance sheet is likely to witness ~4.6 fold jump from FY08 to FY10Eowing to amalgamation between group companies. We believe thecompany will be able to double the balance sheet size over the next twoyears from FY10E to FY12E owing to growth in installed capacity. The
company is in the capex mode and will increase the installed capacity byover 3.1 fold from 700 MW to ~2,200 MW.
Exhibit 17:Robust growth in balance sheet size
1,967.4 2,113.8
8,992.6
13,357.4
18,160.2
325.4
7.4
48.5 36.0
02,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
FY08 FY09 FY10E FY11E FY12E
RsCrores
0
50
100
150
200
250
300
350
Total Balance Sheet Growth
Source: Company, ICICIdirect.com Research
Net debt to equity to remain under control post conversion of FCCB
JPVL is still in capex mode and will continue to draw substantial amountsof debt over the next three years in order to increase the installedcapacity. The debt infusion will continue to burden the debt equity profileof JPVL. We believe that post the conversion of the recently issued FCCB,the debt: equity ratio will remain under control. Overall debt includes theUS$200 million (~Rs 920 crore) FCCB issued for funding their expansionplans. FCCBs have a conversion price of Rs 85.8 and are eligible forconversion from FY11E. Post conversion, net debt: equity will stay at 2.3.
Exhibit 18:Net debt to equity to remain under control post conversion of the FCCBPre conversion
0.7
0.7
0
.9
2.2
3.0
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
FY08
FY09
FY10E
FY11E
FY12E
-1.00
0.00
1.00
2.00
3.00
4.00
Net Debt - Rs Cr (LHS)
Equity - Rs Cr (LHS)
Net Debt : Equity (x) - (RHS)
Post conversion
0.7
2.3
1.5
0.50.7
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
FY08
FY09
FY10E
FY11E
FY12E
-1.00
0.00
1.00
2.00
3.00
4.00
Net Debt - Rs Cr (LHS)
Equity - Rs Cr (LHS)
Net Debt : Equity (x) - (RHS)
Source: Company, ICICIdirect.com Research
The balance sheet is likely to witness a 4.6 fold
jump from FY08 to FY10E owing to amalgamation
between group companies. The company will be
able to nearly double the balance sheet size over
the next two years from FY10E to FY12E owing to
growth in installed capacity
We believe the company will be able to
successfully convert the outstanding FCCB. FCCBs
are due for redemption only by 2015. This gives
the company ample time and the spread between
the conversion price and the existing CMP is not
significant
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Profitability set to grow significantly after a lull
After a small blip in 2009, the profitability is set to grow led byamalgamation. For our modelling purpose, we have assumed that theincome from the sale of carbon credit will accrue with thecommencement of operations at the respective plant. Profitability is set togrow with incremental capacities coming on stream.
Exhibit 19:Growing profits to augur well for shareholders
146 143221 271
644
-2.3
54.9
22.4
137.7
0
200
400
600
800
1,000
FY08 FY09 FY10E FY11E FY12E
(20)
0
20
40
60
80
100
120
140
160
PAT excl extraordinary items Growth (%)
Source: Company, ICICIdirect.com Research
Improving outlook for return ratios
JPVL is in advanced stages of commissioning ~1,500 MW capacity overthe next 24 months. The overall asset turnover has reduced due to buildup in CWIP and is dragging the overall return on equity. The return ratiosare expected to again scale back to highs subsequent to the plantcommissioning.
Exhibit 20:Return ratios improving subsequent to addition in the installed capacity
20.85%
13.29%
7.48%
15.10%
12.23% 11.78%6.60%
10.73%
5.50%
11.98%
0%
5%
10%
15%
20%
25%
30%
35%
FY08 FY09 FY10E FY11E FY12E
ROE ROCE
Source: Company, ICICIdirect.com Research
Profitability is set to grow ~4.5 folds over the
three year period from FY09 to FY12E
Return ratios are expected to scale back to earlier
highs post the commissioning of Karcham Wangtoo
project.
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Valuations
At the CMP of Rs 67, the stock is offering ~6.2% upside potential. JPVLhas 700 MW of plants operational, which comprises Rs 17 per share and~24% in the overall value. The expansion plans form the remainingportion of the overall value.JPVL continues to be on a firm footing when it comes to their expansionplans. We believe the expensive valuation is justified owing to thedemonstrated capability of the Jaypee group. The expansion plans willstart to bear fruit from FY12E. JPVL can be considered a defensivecounter at lower levels considering the robust utility business, whichprovides for long-term visibility.
Exhibit 21:JPVLs fair value based on SOTP model
71
89
85
1
64
63 0
0 0 2
9 7
0
20
40
60
80
100
Baspa
VishnuPrayag
KarchamWamgtoo
Bina-I
Bina-II
Nigrie
Bara-I
Bara-II
Karchana-I
Karchana-II
LowerSiang
Hirong
Kynshi-II
Umngot-I
JaypeePowerGrid
TotalValue
Rspershare
Source: Company, ICICIdirect.com Research
The historical financials of the company are not depictive considering aminiscule installed capacity compared with the overall expansion plans.JPVL has only 700 MW of plants operational, which comprises ~21% ofthe overall value. JPVL is the flagship company from the Jaypee group.Considering the execution record of JAL, it provides comfort with respectto their existing expansion plans. Delays in execution of any project mayimpact our valuation case.
Exhibit 22:Project wise valuation for the power verticalBara - I
Bara - II
Karchana - I
Karchana - II
Lower Siang
Nigrie
Bina - II
Bina - I
Baspa
Umngot - I
Jaypee Power Grid
Kynshi - II
Vishnu Prayag
Karcham Wamgtoo
Hirong
Source: Company, ICICIdirect.com Research
The existing price is already discounting the growth
plans for the company. Considering the defensive
business model for JPVL one can continue to
accumulate the counter on downturns
JPVL has shown competency by winning
competitive bids at lucrative rates in Bara and
Karchana.
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Exhibit 23:Valuation table of the generation and transmission verticalProjects Fuel
Capacity
(MW)
Project
Cost
Ownership
(%)
JPVL's share
(MW)
Value per
share
Equity Value -
JPVL
M Cap / MW
(Rs Cr)
Cost of
Equity (%)
Baspa Hydro 300 1,545 100 300 8 1,580 5.3 12
Vishnu Prayag Hydro 400 1,720 100 400 9 1,927 4.8 12
Karcham Wamgtoo Hydro 1,000 7,150 57 569 8 1,729 3.0 13
Bina - I Coal 500 2,753 100 500 5 1,109 2.2 13
Bina - II Coal 750 4,125 100 750 1 243 0.3 13
Nigrie Coal 1,320 8,118 100 1,320 9 1,951 1.5 13
Bara - I Coal 1,980 11,088 100 1,980 7 1,530 0.8 13
Bara - II Coal 1,320 7,392 100 1,320 6 1,307 1.0 13
Karchana - I Coal 1,320 7,392 100 1,320 4 915 0.7 13
Karchana - II Coal 660 3,696 100 660 6 1,244 1.9 13
Lower Siang Hydro 2,700 13,500 89 2,403 3 733 0.3 16
Hirong Hydro 500 2,500 89 445 0 83 0.2 16
Kynshi - II Hydro 450 2,250 74 333 0 57 0.2 16
Umngot - I Hydro 270 1,350 74 200 0 50 0.3 16
Transmission
Jaypee Power Grid Transmission 217kms 1,000 76 165 kms 2 513
Total 13,470 75,579 12,500 71 14,970 1.2 Source: Company, ICICIdirect.com Research
For valuing the transmission sector we have assigned a book valuemultiple of 2.25x. This gives the transmission venture an overall value ofRs 675 crore for the entire stake while JPVL is holding 74% stake in theventure.
The power sector is witnessing heightened activity and will continue tooffer new opportunities over the coming decade. Post commissioning of1,500 MW capacity in the next two year, JPVL will become one of theleading private sector generation companies. The existing plants will
contribute to the free cash flow generation, which can be furtherdeployed in growth opportunities. Strong execution track record of theparent company provides the competitive edge to JPVL with regard toexecuting the present pipeline and catering to the upcomingopportunities. Thus, we are initiating coverage on the stock with an ADDrating.
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Exhibit 24:Profit and Loss AccountRs Crore FY08 FY09 FY10E FY11E FY12E
Sales 300.8 296.7 704.8 724.0 2405.2
Growth (%) -8.6 -1.4 137.6 2.7 232.2
Op. Expenditure 25.1 23.4 56.9 59.2 307.0EBITDA 275.7 273.3 647.9 664.9 2098.2
Growth (%) -9.3 -0.9 137.1 2.6 215.6
Other Income 41.7 21.2 15.0 49.0 88.0
Depreciation 45.9 47.0 86.7 85.2 309.0
EBIT 271.5 247.5 576.2 628.7 1877.2
Interest 99.3 81.9 267.3 269.1 753.3
PBT 172.2 165.6 308.9 359.6 1124.0
Growth (%) -23.5 -3.8 86.5 16.4 212.6
Tax 27.3 15.6 85.7 88.6 260.9
Extraordinary Item 68.4 -7.0 0.0 0.0 0.0
Rep. PAT before MI 213.4 142.9 223.2 270.9 863.0
Minority interest (MI) 0.0 0.0 0.0 0.0 219.0
Rep. PAT after MI 213.4 142.9 223.2 270.9 644.1
Adjustments 0.0 0.0 0.0 0.0 0.0
Adj. Net Profit 213.4 142.9 223.2 270.9 644.1
Growth (%) 12.9 -33.0 56.1 21.4 137.7
(Rs Crore)
Source: Company, ICICIdirect.com Research
Exhibit 25:Balance sheetRs Crore FY08 FY09 FY10E FY11E FY12E
Equity Capital 491.0 491.0 2095.7 2095.7 2095.7
Share Warrants 0.0 0.0 0.0 0.0 0.0
Reserves & Surplus 539.5 584.2 1255.5 1526.4 2170.5
Shareholder's Fund 1030.5 1075.2 3351.2 3622.1 4266.2
Minority Interest 36.8 49.8 336.2 490.4 709.4
Borrowings 286.5 191.6 3819.9 7767.5 11715.2
Unsecured Loans 543.1 719.7 1267.5 1259.5 1251.5
Deferred Revenue 70.6 77.6 217.9 217.9 217.9
Source of Funds 1967.4 2113.8 8992.6 13357.4 18160.2
Gross Block 1722.7 1848.7 4746.7 4746.7 13896.7
Less: Acc. Depreciation 217.2 264.1 350.8 436.0 745.0
Net Block 1505.5 1584.6 4395.9 4310.8 13151.7
Capital WIP 90.2 195.6 2195.6 7595.6 3845.6
Net Fixed Assets 1595.7 1780.2 6591.5 11906.3 16997.3
Intangible asset 0.0 0.0 0.0 0.0 0.0
Investments 0.0 55.9 1414.0 1000.0 50.0
Cash 96.1 123.7 731.4 198.2 294.5Trade Receivables 214.4 120.6 150.6 132.3 572.3
Loans & Advances/Other 177.5 182.8 250.6 266.3 415.5
Inventory 5.0 4.9 0.0 0.0 0.0
Total Current Asset 492.9 432.0 1132.6 596.8 1282.3
Current Liab. & Prov. 121.2 154.2 145.5 145.7 169.4
Net Current Asset 371.7 277.8 987.1 451.1 1112.9
Application of funds 1967.4 2113.8 8992.6 13357.4 18160.2
(Rs crore)
Source: Company, ICICIdirect.com Research
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Exhibit 26:Cash Flow statementRs Crore FY08 FY09 FY10E FY11E FY12E
Net Profit after Tax 213.4 142.9 223.2 270.9 644.1
Other Non Cash Exp -1.5 0.0 1.8 0.0 0.0
Depreciation 45.9 47.0 86.7 85.2 309.0Direct Tax Paid 27.2 15.6 85.7 88.6 260.9
Other Non Cash Inc 0.0 0.0 0.0 0.0 0.0
CF before change in WC 380.6 278.9 717.4 625.2 1925.3
Inc./Dec. in WC 51.0 121.5 -103.5 2.9 -565.4
CF from operations 431.6 400.4 613.9 628.1 1359.9
Pur. of Fix Assets -52.9 -231.5 -4898.0 -5400.0 -5400.0
Pur. of Inv 0.0 0.0 -1358.1 414.0 950.0
CF from Investing -52.9 -231.5 -6256.1 -4986.0 -4450.0
Inc./(Dec.) in Debt -193.2 -85.0 4176.1 3939.7 3939.7
Inc./(Dec.) in Net worth 0.0 0.0 2341.1 154.2 0.0
Others -185.5 -81.9 -267.3 -269.1 -753.3
CF from Financing -378.7 -166.9 6249.9 3824.8 3186.4
Opening Cash balance 59.4 96.1 123.7 731.4 198.2
Closing Cash balance 96.1 123.7 731.4 198.2 294.5
(Rs crore)
Source: Company, ICICIdirect.com Research
Exhibit 27:Key Ratios(%)
FY08 FY09 FY10E FY11E FY12E
Raw Material 0.0 0.0 0.0 0.0 6.0
Operation & maint exp. 8.4 7.9 8.1 8.2 12.8
Income from CER's/VER's 0.0 2.6 5.2 5.1 12.0
Effective Tax rate 15.8 9.4 27.8 24.7 23.2
Profitability ratios (%)
EBITDA Margin 91.6 92.1 91.9 91.8 87.2
PAT Margin 70.9 48.2 31.7 37.4 35.9
Per share data (Rs)
Revenue per share 1.4 1.3 2.9 3.0 10.0
EV per share 46.9 46.3 58.9 77.5 93.6
Book Value 20.9 21.9 16.0 17.3 20.4
Cash per share 0.4 0.6 3.0 0.8 1.2
EPS 1.0 0.7 0.9 1.1 2.7
Cash EPS 1.9 1.6 1.3 1.5 4.2
DPS 0.8 0.8 0.0 0.0 0.0
Source: Company, ICICIdirect.com Research
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Exhibit 28:Key Ratios(%)
Return ratios FY08 FY09 FY10E FY11E FY12E
RoNW 20.9 13.3 6.6 7.5 15.1
ROCE 12.2 11.8 10.7 5.5 12.0
ROIC 15.1 13.3 8.7 5.3 10.7
Financial health ratio
Operating CF (Rs Cr) 431.6 400.4 613.9 628.1 1359.9
FCF (Rs Cr) 246.5 147.6 -4439.4 -4820.9 -4128.1
Cap. Emp. (Rs Cr) 1846.1 1959.6 8847.1 13211.8 17990.7
Debt to equity (x) 0.8 0.8 1.5 2.5 3.0
Debt to cap. emp. (x) 0.4 0.5 0.6 0.7 0.7
Interest Coverage (x) 1.7 2.0 1.2 1.3 1.5
Debt to EBITDA (x) 3.0 3.3 7.9 13.6 6.2
DuPont ratio analysis
PAT/PBT 1.2 0.9 0.7 0.8 0.6
PBT/EBIT 0.6 0.7 0.5 0.6 0.6
EBIT/Net sales 0.9 0.8 0.8 0.9 0.8
Net Sales/ Tot. Asset 0.1 0.1 0.1 0.1 0.1
Total Asset/ NW 2.0 2.1 2.7 3.7 4.3 Source: Company, ICICIdirect.com Research
Exhibit 29:Key Ratios(x times)
Working Capital FY08 FY09 FY10E FY11E FY12E
Working cap./Sales (%) 123.6 93.6 140.1 62.3 46.3
Inventory turnover NA NA NA NA NA
Debtor turnover 1.3 1.7 5.2 4.9 6.2
Creditor turnover 10.8 45.4 205.6 123.6 124.3
Current Ratio 4.1 2.8 7.8 4.1 7.6 Source: Company, ICICIdirect.com Research
Exhibit 30:Key Ratios(Rs crore)
FCF Calculation
EBITDA 275.7 273.3 647.9 664.9 2098.2
Less: Tax 27.3 15.6 85.7 88.6 260.9
NOPLAT 248.4 257.6 562.2 576.2 1837.3
Capex -52.9 -231.5 -4898.0 -5400.0 -5400.0
Change in working cap. 51.0 121.5 -103.5 2.9 -565.4
FCF 246.5 147.6 -4439.4 -4820.9 -4128.1 Source: Company, ICICIdirect.com Research
Exhibit 31:Key RatiosValuation (x times)
FY08 FY09 FY10E FY11E FY12E
PE (x) 47.4 70.8 49.5 40.7 17.1
EV/EBITDA (x) 39.3 39.9 23.8 29.9 11.3
EV/Sales (x) 36.0 36.7 21.8 27.4 9.9
Dividend Yield (%) 1.6 1.6 0.0 0.0 0.0
Price/BV (x) NA NA 3.3 3.0 2.6 Source: Company, ICICIdirect.com Research
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Annexure
Exhibit 32:Pre and Post corporate structure for Jaiprakash AssociatePre Amalgamation Post Amalgamation
63.30% 80.60% 76.30%
Jaiprakash Associates Ltd. Jaiprakash Associates Ltd.
Jaiprakash Hydro Pow er (JHPL)
100% - Baspa - 300 MW
51% - Jaypee P ower Grid
Jaiprakash Power Ventures (JPVL)
100% - Vishnuprayag - 400 MW
100% - Nigrie - 1,320 MW
23% - Jaypee Powergrid56% - Karcham Wangtoo -1,000MW
100% - Bina Power - 1,250 MW
100% - UP Pow er projects - 5,280 MW
89% - Arunachal projects - 3,200 MW
74% - Meghalaya Projects - 720 MW
Jaiprakash Power Ventures (JPVL)
100% - Baspa - 300 MW
100% - Vishnuprayag - 400 MW
100% - Nigrie - 1,320 MW74% - Jaypee Powergrid
56.4% - Karcham Wangtoo -1,000 MW
100% - Bina Power - 1,250 MW
100% - UP P ower projects - 5,280 MW
89% - Arunachal projects - 3,200 MW
74% - Meghalaya Projects - 720 MW
Source: Company, ICICIdirect.com Research
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RATING RATIONALE
CICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assignsratings to its stocks according to their notional target price vs. current market price and then categorises themas Outperformer, Performer, Hold, and Underperformer. The performance horizon is two years unless specified
and the notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;Buy: Between 10% and 20%;Add: Up to 10%;Reduce: Up to -10%Sell: -10% or more;
Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,ICICI Securities Limited,7th Floor , Akruti Centre Point,MIDC Main Road, Marol Naka,Andheri (East)Mumbai 400 093
research@icicidirect.com
ANALYST CERTIFICATIONWe /I,Jitesh Bhanot CA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views aboutny and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
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is confirmed thatJitesh Bhanot CA research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companiesmentioned in the report.
CICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make usef information contained in the report prior to the publication thereof.
his report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,ublication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
escribed herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of ando observe such restriction.
CICI Securities Limited has been mandated to act as one of the Book Running Lead Managers to manage the IPO of the subsidiary of Jaiprakash Associates, viz., JP Infratech Limited. This report isrepared on the basis of publicly available information.