Massive under-performance makes JP Power an attractive scrip to buy, but problems persist
For instance, both the company’s units at Nigrie thermal power plant, Madhya Pradesh, have been commercialised, but continue to report losses.
The power sector is going through a bad patch now. Its prospects, however, could improve in the coming years because of sectoral reforms initiated by the central government, improvement in merchant power rates due to a pickup in industrial demand and fall in interest rates. Massive under-performance has made Jaiprakash Power Ventures the cheapest stock in this sector, in terms of price-to-book ratio, making it a very good long-term pick from the power sector.
To reduce its debt burden, the company has sold off some of its hydro power assets to JSW Energy. And as of now, it only has an operational capacity of 400 MW of hydro power and 1,800 MW of thermal power. Thermal power plants with a capacity of 2,000MW are also under construction. Most of the sales proceeds from its hydro power assets will be used to settle the debt of its parent and, therefore, cash flow issues will persist. This means that only those investors who are ready to practice the high risk–high return strategy need to consider this stock. Also, since there are no immediate triggers for this counter, investors who want to get in should come with a clear long-term view—at least three years of holding period.
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