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Stock Analysis, IPO, Mutual Funds, Bonds & More

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.

, ET Bureau|
Jun 29, 2015, 08.00 AM IST
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For instance, both the company’s units at Nigrie thermal power plant, Madhya Pradesh, have been commercialised, but continue to report losses.
For instance, both the company’s units at Nigrie thermal power plant, Madhya Pradesh, have been commercialised, but continue to report losses.
Jaiprakash Power Ventures is gradually becoming analysts’ favourite again. This is because of the counter’s massive under-performance in the recent past that led to a sharp fall in valuation. Lower than expected net loss in the fourth quarter of 2014-15 has only added to the analysts’ interest. Its net loss for the fourth quarter stood at Rs 141.54 crore compared to a net loss of Rs 171.98 crore for same period last year or year on year (y-o-y). The company has also made some improvement at the operational level and its fourth quarter total income more than doubled y-o-y to Rs 987.51 crore from Rs 459.03 crore.

Massive under-performance makes JP Power an attractive scrip to buy, but problems persist



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.

Massive under-performance makes JP Power an attractive scrip to buy, but problems persist
However, investors should not ignore the problems the company faces. For instance, both the company’s units at Nigrie thermal power plant, Madhya Pradesh, have been commercialised, but continue to report losses. Due to the de-allocation of its captive coal block and due to the impact of increase in fuel costs—a result of coal mining at the Amelia coal block, which the company won in the recent coal block auctions—the pressure on Nigrie plants will continue in the coming years.

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.

Selection Methodology:



We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bull-ish on the stock.

To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 50 table.

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