Satluj Jal Vidyut Nigam Limited -

28th April,2010Satluj Jal Vidyut Nigam Limited - IPO NOTEResearch By,BhaskarPranav & TrushikANS Research Desk(Research Wing of ANS Pvt Ltd)“ARHAM” Financial CentreHarihar Chowk, RAJKOT (Guj)Speak to: 0281 – 6699401Drop a line to: research@anspl.net

Issue DetailsSectorPowerIssue Size 41,16,50,000ERO 33,50,000Net Issue 41,50,00,000QIBs * 41,50,000Non-Institutional* 12,45,000Retail* 29,05,000Face ValueRs.10Price Band #Rs.23- Rs.26BRLMsIDBI CapitalIDFC CapitalSBI CapitalJM FinancialRegistrarLINK INTIME IndiaPromotersGovt. of IndiaCompany Address:SJVN LimitedHimfed BuildingNew Shimla171 009Himachal PradeshTel: +91 177 267 0064Fax: +91 177 267 0542E-mail: investor.relations@sjvn.nic.inWebsite: www.sjvn.nic.in* Minimum allotment# 5% discount to retail investorsRATINGS: CARE has given an IPO rating of GRADE 3 to the issue suggestingaverage fundamentals for the company.SJVN Limited is a hydroelectric power generation company originally established as a jointventure between the Government and the state government of Himachal Pradesh to developand operate the NJHPS (Naptha Jhakhri Hydro Power Station). NJHPS is currently the largestoperational hydroelectric power generation facility in India based on installed capacity, with anaggregate generation capacity of 1,500 MW, and is located on the Sutlej River in the state ofHimachal Pradesh.The net issue proceeds will be used for following objectives:This is an offer for sale by the President of India of Equity Shares representing 10.03%of the paid up capital of the Company. Accordingly, our Company will not receive anyproceeds from the Offer and all of the proceeds, less the expenses of the Offer shallbe received by the Selling Shareholder.The purpose of the Offer is to achieve the benefits of listing on the Stock Exchangesand to carry out the transfer of 415,000,000 Equity Shares by the Selling Shareholder.Listing of the Equity Shares will create liquidity in the Equity Shares through thecreation of a public market for the Equity Shares in India.The average cost of acquisition per Equity Share by the GoHP is Rs 10.12. The average cost ofacquisition for the GoI is Rs 10.Source: Company RHP

INDUSTRY OUTLOOKThe power industry in India has historically been characterized by energy shortages, withdemand for electricity far exceeding the supply. The continued growth of the Indian economyhas accelerated the need for further investments in the power sector. The Government hasidentified the power sector as a focus sector, in order to sustain industrial growth. Based on areport published by the CEA (Power Scenario at a Glance, December 2009), for FY 2009,demand for electricity exceeded supply by 11.0% (as compared to 9.9% in the preceding year).The total energy shortage during this period was 85,303 MU. Similarly, India’s peak demanddeficit during this period was 12.0% or 13,124 MW.The following graph shows the difference between demand for, and supply of, energy in Indiabetween FY 2002 and FY 2009:

HydroelectricityHydropower is a renewable source of energy that is more economical and less polluting andless damaging to the environment than most other forms of energy production. Developinghydropower enhances energy security as there is no fuel cost during the life of the project.Hydropower generation is unaffected by issues concerning fuel supply, particularly the volatileprice fluctuations which affect imported fuels, and hydroelectric power stations are capable ofinstantaneously starting or stopping operations and are able to accommodate various loadingalternatives. Hydroelectric power stations to improve the reliability of power systems and areideal for meeting demand during peak times.In a hydroelectric power station, energy is harnessed from water by running it from anincreased height to a lower height and in the process, driving a hydro-turbine, which rotates analternator to produce electricity.

COMPANY OVERVIEWSJVN was incorporated on May 4, 1988 under the name Nathpa Jhakri Power CorporationPrivate Ltd. It was established as a joint venture between the Government of India and thestate government of Himachal Pradesh (75:25) to develop and operate the NJHPS.Subsequently in September 2002, the name of the Company was changed to “Satluj Jal VidyutNigam Limited” as the operations of the Company were based in and around the river Sutlej.The Company got its present name in September 2009 as the operations of the Companyexpanded and were no longer continued to the area in and around the river Sutlej. The NJHPS iscurrently the largest operational hydroelectric power generation capacity, with an aggregategeneration capacity of 1,500 MW. The NHJPS is currently SJVN’s only hydroelectric powerproject in operation. The first unit of 250 MW of NJHPS was commissioned in October 2003with balance five units getting commissioned in phases by May 2004. The Company is a‘Miniratna’ Category-I (Schedule A) public sector undertaking. The Company in future intends toadd over 5,000 MW to its total power generation capacity by 2014-15.The NJHPS is currently the only hydroelectric power project in operation. SJVN is required tosupply 12% of our annual generation from the NJHPS to the state of Himachal Pradesh free ofcost, and an additional 1% of our annual generation from projects located in the state ofHimachal Pradesh to a local area development fund established by the state government ofHimachal Pradesh for the purposes of providing a regular stream of revenue for incomegeneration and welfare schemes, creation of additional infrastructure and common facilities ona sustained and continued basis over the life of the project.

POSITIVES AND CONCERNS ABOUT THE COMPANYPositivesNation’s Power Deficit – Need for power generation capacityAccording to Central Electricity Authority (CEA), the country faced average energy deficit of 11%and peak deficit of 12.7% in FY09. Furthermore, the total energy requirement and peak demandis projected to increase to 974,974 mn units and 157,107 MW by FY12. As on January 31, 2010India had an installed power generation capacity of ~ 156,784 MW, with thermal and hydropower plants contributing 64% and 23.5%, respectively, to the total installed generationcapacity. Accordingly, the Government of India (GoI) has increased the efforts to ramp up thepower generation capacity (targeting to double in next 10 years) in India. With the deficit,Power generation has exceptional demand in future, hence a lot of room from futureexpansion.Stable Revenue StreamThe company has entered into ten power purchase agreements with state utilities in thenorthern region of India, two of which are in the process of being renewed. Payments for salesare typically secured by forms of credit support such as letters of credit issued by reputablefinancial institutions or by state government guarantees. They have not experienced anysignificant delays in payment or payment defaults by such customers in the past and maintainstrong working relationships with these customers.Targets to triple the capacity over the next decadeSJVN has drafted a roadmap to nearly triple its capacity to 5,500 MW over the next decade. Ithas plans to set up 1,237 MW in HP, 363MW in Uttarakhand, 1500MW in Manipur and 900MWin Nepal. With its proven execution capabilities, this expansion would generate strong revenuein a longer term.

ConcernsFinancial performance is dependent on the NJHPS - the only operational projectAll the company's revenues are generated from the NJHPS. Consequently, any interruption inthe operations of the NJHPS would potentially have a greater negative impact on the companythan if operations were spread among a larger number of facilities in India or in the rest of theworld. Any factors which would result in any disruptions at the NJHPS may have a significantand adverse impact on business, operations, cashflows, profitability, financial condition andresults of operations. Also the company is dependent on revenues and cashflows from theNJHPS to finance the development and construction of pipeline of projects.Substantial initial capital expendituresThe development of hydroelectric power projects is capital intensive and typically requires alonger period of time as compared to other power projects such as thermal power projects.SJVN expects to finance the existing pipeline of projects through financing arrangements withthird party lenders, as well as through internal cash flows. There can be no assurance that theywill be able to obtain such financing, or to do so on commercially acceptable terms or in atimely manner.Exposure to foreign currency fluctuationsAs of December 2009, the company has approximately 35% of its debt in foreign currencies,thus exposing it to exchange rate fluctuations.Government selling its stake – No capital is flowing to the companyThis is an offer for sale by the President of India of Equity Shares representing 10.03% of thepaid up capital of the Company. Accordingly, our Company will not receive any proceeds fromthe Offer and all of the proceeds, less the expenses of the Offer shall be received by the SellingShareholder.

FINANCIAL HIGHLIGHTS1. Total income of the company has grown at a CAGR of 12% from 2007 toMar 2009.2. Interest payment made by SJVN has reduced considerably, as thecompany has being paying back its loans.3. Cashflows of the SJVN has been consistently positive and increasing.Profit & Loss (Standalone Results)(Rs. In Millions)PARTICULARSDec2009Mar2009Mar 2008 Mar2007Income 14231 14907 13567.5 14094.6Other Income 869 1440.6 1055.3 667.1Operating Income 15100 16348.4 14622 14761.7Total Expenditure 5755.2 6322.9 6444.8 7069.2Dep. & Amortization 3259.9 2342.3 2399.2 2456.1Interest 1396.2 2205.5 2546.9 3229.8Tax 9344.8 10025.5 8178 7692.5PAT 7753.7 7593.2 7169.1 6499.8Diluted EPS(after bonusissue)1.89 1.85 1.74 1.58SOURCE: COMPANY RHP

Balance Sheet (Standalone Results)(Rs. In Millions)Particulars Dec 2009 Mar 2009 Mar 2008 Mar 2007Total Funds 67583.2 60765.5 56916.1 52601.6Total Debts 17701 21424 20200 25241Cash & Bank Bal 14871 12714 6936 6210Total Assets 93943 90685 83608 82332Contingent Liability 0 907.46 1193.53 15.91SOURCE: COMPANY RHPCash Flow (Standalone Results)(Rs. In Millions)PARTICULARSDec Mar Mar 2008 Mar 20072009 2009Cash From Operating Activities 14339.5 17956.3 17662.5 19681.8Cash From Investing Activities -2562.7 -6247 -4602.4 -2560.8Cash From Financing Activities -8170 -3266.3 -111830.6 -11309.8Net Cash Inflow/Outflow 2157.1 5778.4 725.6 4876.9Opening Cash and Cash Equiv. 12714.4 6936 6210.4 1333.5Closing Cash and Cash Equiv. 14871.5 12714.4 6936 6210.4SOURCE: COMPANY RHP

RECOMMENDATIONSAlthough, the valuation looks attractive, recent public offerings by governmenthave had a muted response from retail investors. Similar company’s offering wasavailable at a significant discount in the secondary market. Thus, there we dosuspect a possibility that the issue might be available at a discount. We hold a“NEUTRAL” view with a negative bias, for this IPO.However, long term & patient investors can subscribe this IPO and hold itthrough the volatility. Markets will surely discover its true value post listing.Recommendation Rationale – The Company has strong fundamentals andexceptional execution skills. Due to minimal operating costs, hydroelectricpower generation enjoys high margins. However, such company’s have longgestation periods as it takes a very long time to set up a hydro power plant andto make it fully operational.ValuationsPrice EPS BV P/E P/B.V.Band23 1.89 16.45 12.16 1.3926 1.89 16.45 13.75 1.58

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