SYMBIOSIS CENTRE FOR MANAGEMENT STUDIES

(UNDER–GRADUATE)

Financial management project

ON
Green orient power limited

SUBMITTED BY
Kuber agrawal - 2140
Ritu shrivastava-2159
SHASHANK JAIN – 2165

What is an IPO..??
An initial public offering, or IPO, is the first sale of stock by a company to the public. A company
can raise money by issuing either debt or equity. If the company has never issued equity to the
public, it's known as an IPO.

Company Background
OGPL promoted by Shriram EPC is India’s leading renewable energy-based power generation
company focused on developing, owning and operating a diversified portfolio of renewable
energy power plants. With a total aggregate installed capacity of 213.0MW, the company is the
largest independent operator and developer of renewable energy power plants in India. OGPL’s
operations can be classified under three business verticals namely, wind energy business, bio-
mass power and other businesses such as small hydro electric plant, mini hydro electric plant,
solar and other renewable sources of power.

Orient Green Power (OGPL) is India’s leading renewable energy-based power generation
company focused on developing, owning and operating a diversified portfolio of renewable
energy power plants. OGPL, which currently has an installed capacity of 213.0MW, has another
836.5MW of prospective capacity expected to get operational by FY2013.

Huge potential for the development of renewable power: India’s renewable energy-based
power capacities have increased their share of total power capacity from 2.0% in FY2003 to
around 10.0% in 2010. Despite this, the renewable power sector still has huge potential, which
remains untapped. The country’s wind power capacity stands at 10,890MW although the
potential has been estimated at approximately 48,500MW. The government has announced a
number of fiscal incentives and measures such as renewable power obligation and the renewable
energy certificate mechanisms, which are expected to spur growth of this sector.

Company Products
The company’s operational projects comprise 172.5MW of wind energy projects and 40.5MW of
biomass projects. OGPL’s portfolio of committed and development projects includes
approximately 836.5MW of prospective capacity, comprising an estimated 643.0MW of wind
energy projects, 178.5MW of biomass projects and a small hydroelectric project of 15.0MW.
OGPL is the second larges IPP in both wind power generation and biomass-based power
generation in India, with a market share of 8.7%. and 7.1%, respectively.

OGPL has grown its business by acquiring, operating and developing renewable energy assets of
third parties and by developing green-field projects. The company’s diverse customer base
include SEBs, distribution companies, private commercial and industrial consumers and a power
trading company

Orient Green Power Limited is the largest independent operator and developer of renewable
energy power plants in India with a total of 213.03 MW installed capacity. Currently, this is split
out between Wind and Biomass with Wind energy forming the majority.In the future they plan to
add a small component of hydro electric power to the mix and increase the committed and
development project capacity to 836.5 MW. Orient Green Power also derives revenues from the
recognition of carbon credits.

Wind energy

Wind energy capacity of 10,890MW accounts for 52.0% of the total renewable capacity of the
IPPs. The country’s onshore wind power potential has been estimated at approximately
48,500MW. There is a growing number IPPs involved in wind power generation in India, with
nearly 15.0% of the total wind power capacity installed as of March 2009 coming from the IPPs.

Biomass energy
The aggregate installed capacity of biomass-based power in India has increased at a CAGR of
24.4% during FY2002-09. As of FY2009, the total installed capacity including co-generation
projects and waste-to-energy-based capacity was 1,811MW, of which 1,049MW comprised
bagasse-based cogeneration, 703MW agri-residue with the remaining comprising waste-to-
energy. IPPs account for nearly 75.0% of the total biomass power generation capacity in India.

Small/mini-hydroelectric power

The aggregate installed capacity of small hydropower plants in India increased at a CAGR of
8.1% over FY2003-09 from 1,519MW to 2,413MW. IPPs account for nearly 33.0% of the total
installed capacity for small hydropower in India. While India has nearly total potential of
14,000MW for small hydropower, it has achieved around 18.0% of this potential. A majority of
the good small hydropower sites are in the north and north-eastern regions of India.
Here is the break-up of planned energy generation from various sources:
IPO Details
OGPL has set a price band of Rs47-55/share for its Rs900cr IPO, which opened for subscription
during September 21-23, 2010. At the lower and higher end of the price band, the issue would
involve dilution of 40.9% and 37.2% of the fully-diluted post-issue paid-up capital of the
company
Funding
The total fund requirement to set up 800 MW of capacity stands at Rs 5,092 crore, of which
some of the capex has been already incurred. At a 70:30 debt-equity, the company may require
more than Rs 1,500 crore of equity funding.

However, of the Rs 900 crore funds raised, only Rs 590 crore will be utilised towards project
development and the rest towards repaying part-debt.

As the company turns profitable and pays down debt, funds may be freed up to be ploughed back
into the capex. Yet, a gap in equity financing is likely to remain.

While the company has not turned profitable, the projects' efficiencies may improve, making
OGPL profitable this year.

Financials of Orient Green Power

Limited
The company had revenues to the tune of Rs. 104.47 million in 2009, and Rs. 441.58 million in
2010, and a net loss of Rs. 113.08 million and Rs. 122.41 million respectively. Because of the
limited history, and the planned expansion these financial numbers don’t hold as much meaning
as it would for a company for a much longer operating history.

The grading report by CRISIL also indicates that these numbers do not contain the profits from
the wind business as the ownership of the wind assets was only transferred in Jan 2010, and the
report says that they expect the financials to improve on profitability going forward.
Investors

 
Reasons for IPO issue
COMPETITION
We operate in a competitive environment. Our competition depends on a host of factors, such as
the type and size of the project, the complexity and location of the project, our previous
relationships with customers/government bodies in the region, and location of competitors’
projects.

In our wind energy business, we mainly compete with other independent power producers for
suitable land for wind farm construction, WEGs, engineering and construction services, PPAs
with SEBs and for private customers.

In India, some of our key competitors are TATA Power Company Limited, IDFC-Green Infra
Limited, CLP Power India Private Limited and Indian Energy Limited.
In Europe, we expect to compete with Acciona Energy, EDP Renewables, EDF Energy, Iberdola
Renewables S.A. and Theolia S.A.

In our biomass power plant business, we primarily compete with other independent power
producers, such asGreenko Group, Surya Chakra Power, Shalivahana Green Energy, Goa Energy
Private Limited and Prathyusha Power Private Limited. In most cases, biomass competition is
limited to securing a license for a preferred location and fuel sourcing if a competitor’s plant is in
a relatively close region.

Comparison with other listed companies

 

Strengths
 We are a leading Indian independent renewable energy-based power generation company.

 We operate in the rapidly growing renewable energy sector, which benefits from increasing
demand for electricity and regulatory support.

 We have a flexible business model that is scalable and sustainable and that enables us to
deliver predictable growth from a diversified and balanced portfolio of projects.

 We have an experienced management and operating team with relevant industry knowledge
and expertise, including the ability to improve operational performance of acquired assets.

 We are able to leverage the expertise and experience of one of our Promoters, SEPC and its
affiliate WEG manufacturer, LSML.

 We have secured debt financing for a significant number of our committed and development
projects.

Concerns

Lower PLFs to suppress IRRs: OGPL’s wind energy plants currently have a PLF of 20-21%
(varies according to wind density), which is lower than the normative PLF of 25% set by the
CERC. This would result in the company reporting lower IRRs than the achievable IRRs if
CERC’s prescribed norms are achieved. Moreover, the company also does not have fuel supply
contracts in place along with lower availability of fuel for the biomass plants, which would result
in lower PLF than the normative standard set by CERC.

Poor financial health of SEBs: Renewable energy-based projects depend, to a great extent, on
the SEBs for off-take under RPOs, which is a concern. Most of the SEB’s suffer due to weak
financial health on account of the huge losses incurred by them due to the distribution of power
at subsidised rates.

Uncertainty in fuel availability: Wind power plants generally suffer due to low PLF’s as the
power generation primarily relies on the wind conditions, which vary  across the seasons.
OGPL’s wind energy plants currently have a PLF of 20-21%, which is lower than the normative
PLF of 25% set by the CERC. Going ahead, the company has planned huge capacity addition in
wind power, operations of which could be hit by the changing weather patterns and resultant
wind conditions. Similarly, in case of the biomass plants, the company does not have any long-
term fuel tie-ups and relies on the farmers for sourcing raw materials such as wood, rice husk,
etc. Thus, any shortage in the availability of these raw materials and hike in their prices would
affect the company’s profitability.

Recommendation Rationale

Huge potential for the development of renewable

power in India
\Renewable energy-based power capacities have registered the highest pace of growth in the
overall capacity additions in India compared to non-renewable sources, increasing their share of
total power capacity from 2.0% in FY2003 to around 10.0% in 2010. The renewable power
sector has huge potential, which still remains untapped. The key drivers for the renewable energy
sector in India include: (i) The demand-supply gap in the power sector (ii) Regulatory incentives
and the availability of CDM benefits and/or Indian renewable energy certificates (REC), when
fully-implemented by the Indian government, (iii) a large untapped potential, (iv) environmental
concerns regarding the use of fossil fuels, (v) the desire to strengthen India’s energy security, and
(vi) a viable solution for rural electrification.

Wind energy has become an attractive form of renewable energy in India due to its sizeable
untapped potential. Installed capacity of wind power in India has increased at a CAGR of 30.0%
since FY2005 and accounts for 70.0% of the total renewable energy installed capacity in India.
As of October 2009, India’s total wind power capacity stood at approximately 10,890MW.
Karnataka and Gujarat have the highest wind energy potential at 11,531MW and 10,645MW,
respectively. In terms of the utilising potential, Tamil Nadu leads with 78% gros potential
utilisation and capacity of 4,305MW. According to MNRE’s Annual Report for 2008-2009,
India’s onshore wind power potential is estimated at approximately 48,500MW. Thus, only 22%
of the total potential has been utilised implying huge scope for development.

As of October 2009, 2,125MW of aggregate installed capacity of biomass power (including

waste-to-energy) existed in India. Bagasse-based generation accounts for 1,241MW, or
approximately 58.0% and non-bagasse biomass-based power accounts for 817MW, or
approximately 38% of total biomass power. The aggregate installed capacity of biomass-based
power in India has increased at a CAGR of 24.4% during FY2002 to FY2009. Currently, India is
estimated to produce approximately 500 million metric tonnes (mmt) of biomass per year, of
which approximately 120-150mmt is surplus, which can be utilised for power generation of up to
17,000MW. In addition, there is also approximately 5,000MW of power generation potential
from bagasse-based cogeneration and around 2,700MW from waste-to-energy projects

Government support: The government has undertaken various measures to promote renewable
energy in India, which would act in favour of the companies in the space. Renewable energy
projects enjoy fiscal incentives such as 80% accelerated depreciation, duty-free imports, tax
holiday and preferential tariffs.

 
A major advantage of the renewable energy projects is the shorter execution time duration as
compared to thermal projects. While the biomass projects can be commissioned within 15-18
months, the wind energy projects can be executed over six-seven months. The land requirement
is low for these projects, while the regulatory hassles are also comparatively lower. OGPL
currently has 400MW of wind power committed projects, and the infrastructure is in place for
majority of the projects. Financial closure has also been achieved for most of the projects. As per
management, construction works of the 74MW of biomass projects are at advanced stages and
hence would be commissioned over the next 7-8 months.
Conclusion

The renewable energy sector is set for healthy growth due to its vast unexplored potential and
supportive government policies. Leader OGPL has charted out aggressive expansion plans to
capitalise on the emerging opportunities in this nascent but growing industry.

At the lower and upper price bands OGPL is available at an implied P/BV of 1.7x – 1.9x on
FY2012E financials, which we believe is fair considering higher RoE’s of its business and the
risks associated with lower PLFs. The IPO is a vailable at a premium to its private sector peer
Indowind Energy (1.3x FY2012E P/BV),which has lesser operational assets at 44MW. For
OGPL, the EV/MW works out to Rs6.3cr and Rs6cr on FY2012E capacity at both ends of the
price band, which is at 10% and 7% premium to its replacement cost, which limits further upside
considering the return ratios. Hence, we recommend a Neutral view on the IPO.