Shares of state-run power generation company SJVN Ltd have had an impressive run lately. In the past six months, the stock has gained about 94% to ₹91 apiece.
Apart from being a key hydro power generator, the government’s increased thrust on adopting renewable energy can help SJVN increase share from solar and wind power. Plus, the recently notified electricity generation tariff norms by power regulator Central Electricity Regulatory Commission (CERC) has buoyed investor sentiment.
For the existing hydroelectric power projects, the CERC has kept regulated return on equity unchanged at 16.5%, but raised it to 17% for projects commissioning after 1 January 2024. The new norms will be applicable for five years starting 1 April, 2024.
According to Elara Securities (India), for pumped storage projects this 50-basis point improvement is expected to stimulate investments in the sector and SJVN is poised to benefit from it.
For now, SJVN’s earnings outlook depends on the progress of large projects. “The timely execution of four hydro units of 225 MW each on river Arun in Nepal, and two thermal units of 660 MW each at Buxar in Bihar could help SJVN nearly double its profit after tax by FY27,” said Sudhanshu Bansal, an analyst at JM Financial Institutional Securities.
The management expects commissioning of all Arun-3 units by mid-FY25, with the first unit of the Buxar plant likely to be operational by June. Developments related to the Naitwar Mori hydro project, comprising two 30 MW units in Uttarakhand is also important.
By FY26, SJVN aims to expand its capacity by 10 GW, through projects spanning across hydro, thermal, solar, and wind energy.
For FY24, it has set a capital expenditure (capex) target at ₹10,000 crore. In H1, only ₹3,800 crore of capex was utilized in H1. Thus, how capex shapes up in H2 remains to be seen.
New project wins, timely signing power purchase agreements and SJVN holding more auctions as renewable energy implementation agency (REIA), are crucial for earnings growth outlook. Through REIA, SJVN will act as a facilitator between the developers and state discoms, thus helping SJVN earn trading margin.
On the flipside, delay in completion of slated projects would be a dampener. Since SJVN caters to many public sector units, elevated receivables and high debt could also be a concern.
As of September end, SJVN’s debt stood at ₹16,993 crore. Interestingly, CY23 was a good year for stocks of many state-run companies. A rub-off effect of that may also have played out for SJVN, so potential downside risks should not be overlooked.