Monarch Networth Capital recommends buy on SJVN, sees potential upside of 48%; here's why | Mint
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Business News/ Markets / Stock Markets/  Monarch Networth Capital recommends buy on SJVN, sees potential upside of 48%; here's why
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Monarch Networth Capital recommends buy on SJVN, sees potential upside of 48%; here's why

Although there has been a recent re-rating on SJVN due to expectations of high revenue and EPS growth in the near future, the brokerage, Monarch Networth still thinks that SJVN's share price momentum is sustainable because of its expectations of sustained high growth over the medium to long term.

On Thursday's session, the SJVN share price jumped 6.7% to touch a 52-week high at ₹90.65 apiece on BSE. SJVN share price today opened at ₹84.51. So far in 2023, SJVN share price has gained 173%. Premium
On Thursday's session, the SJVN share price jumped 6.7% to touch a 52-week high at 90.65 apiece on BSE. SJVN share price today opened at 84.51. So far in 2023, SJVN share price has gained 173%.

Brokerage Monarch Networth Capital Ltd has initiated coverage on SJVN with a 'buy' rating, pointing out the stock's capacity to yield strong returns of two to three times over a three- to five-year period. The brokerage believes there is a potential upside of 48% for SJVN stock from the current market price of 84 and has set the target price for SJVN at 125.

On Thursday's session, the SJVN share price jumped 6.7% to touch a 52-week high at 90.65 apiece on BSE. SJVN share price today opened at 84.51. So far in 2023, SJVN share price has gained 177%. 

Although there has been a recent re-rating due to expectations of high revenue and earnings per share (EPS) growth in the near future, the brokerage still thinks that SJVN's share price momentum is sustainable because of its expectations of sustained high growth over the medium to long term. The company is a renewable energy play with strong fundamentals.

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“The company is fairly unique in terms of its proven ability to operate efficiently and deliver far more value than its peers despite being much smaller in absolute size. Our earnings estimate and target price for FY26 are higher than the consensus," the brokerage said in its report. 

Also Read: ICICI Bank, SBI, Maruti among top 16 picks by Axis Securities. Rolls over base case Nifty target to Dec’24 at 23000.

Ambitious capacity expansion plans

The brokerage claims that by investing primarily in renewable energy sources, such as hydropower, and one coal-based thermal power project, SJVN hopes to increase its installed capacity from the current 2.1 GW, which is primarily hydropower, to 12 GW, 25 GW, or 50 GW by 2026, 2030, or 4040. In order to achieve that goal, preparations have already begun.

"On our estimates, SJVN will achieve a capacity mix of hydro/other renewables/thermal of 38%/46%/16% and unit generation mix of 52%/16%/32% assuming an installed capacity of 8.3 GW by FY26," the brokerage said.

Also Read: Punjab National Bank stock gained 53% in CY23; should you buy?

Strong fundamentals backed by a history of efficient operations

SJVN has a higher average plant load factor (PLF) of 54% compared to 46% for NHPC and 39% for India, according to the brokerage, despite the fact that NHPC is the largest listed hydropower producer in India with a capacity of 7GW. Additionally, in contrast to the normative 85–90% requirement set by the electricity regulator, its plant availability factor (PAF) has continuously been above 100%. As a result, SJVN has experienced higher profitability over time, averaging 12.5% ROE from 2014 to 2022 as opposed to 9.4% for NHPC during the same time frame.

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Supported by favourable sector dynamics and GoI initiatives for renewables

The brokerage estimates that India's annual per capita energy consumption of 1,297 kWh is about one-third of the world average and has increased at a seven-year compound annual growth rate (CAGR) of 2.2% over FY16–22. This is less than half of the Government of India's projected 4.8% increase in the CAGR of peak power demand over 2023–30. 

Because of this, the GoI has set a goal to increase the capacity of renewable energy sources, including hydropower, from 172GW to 500GW by 2030, which represents a CAGR of about 16%. Even though renewable energy is getting more attention, the government has stated that in order to meet peak power demand needs by 2030, an additional 80 GW of coal-based capacity will be needed.

Also Read: SJVN boad to consider fund raise through securitization of assets. Details here

Views

“If the company achieves its guided 25 GW capacity by FY30, our model indicates an upside potential of 2-3x by FY30, implying a CAGR return of 18-22% over 2023-2030. On a 2-year forward basis, our model indicates a risk-reward of 1:2. Our basecase target price (TP), based on EV-to-capacity, for FY26 is 125, while our bull-case and bear-case target price is 166 and 61, respectively. Our estimates for FY26 imply a forward P/E of 11.4x, EV/EBITDA of 10.1x, and EV-to-capacity of 976 thd USD per MW," the brokerage said. 

Also Read: SJVN share price Today Live Updates : SJVN closed today at 84.36, down -1.48% from yesterday's 85.63

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

 

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Published: 07 Dec 2023, 03:54 PM IST
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