Last accounts were for the year ended 2021.
Company came up on an EPV screen in that the EPV at £200m was well ahead of the Mkt Cap £49m or EV £87M.
The immediate market conditions in India have been tough as much of the country has been affected either by Coronavirus or by government responses to coronavirus (lockdowns) this has acted to reduce demand in the period.
Against that not even in lockdown is there no demand for power, and longer term India is a developing country with an increasing demand for power at all levels. A pedestrian, becomes a cyclist, becomes a motorcyclist, becomes a car owner. And should they have children they all want access to the situation at least as good as their parents level.
As such India is a growing market for power supply, with many difficulties to be overcome, many of which benefit incumbents.
At a national level the government has made it clear that whilst it is aware of green issues and not therefore keen on coal, it is equally aware of the levels of Co2 per capita being generated in India v the west, the need for power in India and the cost effectiveness of coal. As such it still regards coal as a positive energy source. India at governmental level has said that it will sign up to levelling Co2 per head. Which should the US cut their levels by 50% still gives India room to increase.
The immediate issue is India is in fact the cost and supply of coal and there has been a level of public discussion about the need to keep the coal supplies going to energy generation and the lights, and air conditioning on for the middle classes.
As Boris Johnson’s reputation for being economically illiterate grows and Sterling becomes a currency to be avoided India seems to be currency that future earnings being converted into £, might make even standing still look good.
At the 31/03/21 Year End the company had
Current Assets of £74.5m against Current Liabilities of £38.2m and Long Term liabilities of £55.7m.
There were also £172m of Fixed Assets and £8m or restricted cash.
The company is cashflow positive, though not staggeringly so. It has been able to refinance a chunk of its debt at better rates and retains more liquid cash than some companies (offset of course by more debt) to allow it some flexibility.
In both of the last 2 years the company has made over £10m. Though some of that may be due to when the profits are accounted for. As such the EPV value of £200m looks a little overstated to me. Though a rate of £150m looks both sustainable and still substantially over the Market Cap and enterprise values. There is an MoS in the investment at current valuations.
The company has a stated focus on concentrating on its most profitable assets and deleveraging its balance sheet.
Whilst my experience is out of date, I am conscious that even quite recently the Indian power market was far from singular. I worked with a company that worked with Indian power companies to provide systems to enable companies to supply power to each others grid and this was big engineering given the differential in phasing and other factors between one grid and another. This might act as a moat or it might act as a brake on growth.
The company has a LTIP and the next tranche exercises at 35p. Current share price is 12.34p
During the lockdown the Chairman Avrind Gupta took no remuneration, and all other Directors took a reduced level.
I am not Indian based so I am very conscious that there could be significant political and cultural issues that I am completely unaware of.
But at a replacement value of £160m a profitable company with what looks to be an improving (slowly) cashflow, a price of £49m does not look to be overpaying. Particularly as the company is supplying into a growing market with a product (coal) that is in demand at the moment, but thanks to ESG could well become cheaper (thereby lengthening its demand cycle) over the next few years.
Given India, given coal, given a UK listing, this is not IMHO, a widows and orphans deal but I do think the balance is substantially weighted to the upside, though with risk. It is in my basket of “dirty power”.
Always DYOR the information above is not intended as a tip but an explanation of some of my thought process.