This Company is Transforming into a Huge Solar Energy Giant. Take a Look...

SJVN, a state-owned company primarily recognised for its hydropower projects, has notably outperformed other power utility stocks, including the nation's largest power producer, NTPC, and industry giants like Adani Power, Tata Power, and JSW Energy.

This impressive feat, marked by a remarkable 113% surge in its stock price this year, can be attributed to a surge in orders that have reached an all-time high.

Remarkably, last year, this public sector entity, which had traditionally focused exclusively on hydropower, established a subsidiary known as SJVN Green Energy.

The primary objective was to expand its presence in renewable energy, primarily in the domains of solar and wind energy, ensuring a stable supply and meeting the growing demand.

This strategic move reflects the company's ambitious aspiration to diversify its business operations and establish a prominent presence in the clean energy sector.

As part of its proactive efforts to diversify into clean energy, SJVN is in the process of crafting an extensive roadmap for renewable and solar energy.

Before delving deeper into SJVN's plans for this pioneering initiative, here's a brief introduction.

About SJVN

Previously known as Satluj Jal Vidyut Nigam, SJVN Ltd is a Mini-Ratna, Category I status company engaged in the business of power generation and engineering consultancy.

It is jointly held by the government of India and the government of Himachal Pradesh, holding a 59.9% stake and 26.85% stakes, respectively.

It is primarily into hydropower production, pumped-storage power (PS) plants, and wind & solar power. The 35-year-old power producer has built a sizable presence with its six installed plants across Arunachal Pradesh, Uttarakhand, Himachal Pradesh, and Nepal.

It currently has a power generation capacity of 2,091.5 MW, with 1,912 MW (or 91.4%) being hydroelectric power and PSP.

Solar and wind power are smaller segments, with 81.9 MW or 3.9% share and 97.6 MW or 4.7% share, respectively. In addition to this, SJVN also operates an 86 km-long power transmission line.

Solar Power Pact

In a significant move towards renewable energy, SJVN's wholly owned subsidiary, SJVN Green Energy Limited, inked a power purchase agreement (PPA) with Bhakra Beas Management Board (BBMB) on 8 September 2023.

Under this agreement, SGEL will develop an 18 MW Solar Power project for BBMB, scheduled for commissioning by August 2024.

The project's first-year energy generation is expected to reach 39.42 million units (MU), with a cumulative energy production of approximately 917 MU over 25 years. This project will be situated on BBMB's land parcels in Himachal Pradesh and Punjab.

SJVN Green Energy secured this project through open competitive bidding at a tariff of Rs 2.6, as part of an e-reverse auction organised by the Punjab Energy Development Agency.

The Power Purchase Agreement is set for 25 years and is expected to reduce carbon emissions by 44,923 tonnes.

SJVN's ambitious plans include the installation of over 10,000 MW of renewable energy capacity within three years, aligning with its vision to reach 25,000 MW by 2030 and an impressive 50,000 MW by 2040.

Solar Power Expansion in Rajasthan

SJVN's subsidiary has achieved a significant milestone on 13 October 2023 by securing a Rs 6 bn renewable power project in Rajasthan.

SJVN Green Energy, a subsidiary of SJVN, received a Letter of Award (LOA) for the development of a 100 MW solar power project in Rajasthan. This project, based on a build, own, and operate (BOO) model, is set at a tariff of Rs 2.62 per unit.

The development cost for this project is estimated at around Rs 6 billion (bn), with an expected energy generation of 252 MU in the first year and a cumulative generation of approximately 5,866 MU over 25 years.

Additionally, SJVN marked a significant achievement with the mechanical spinning of unit-I of the 60 MW Naitwar Mori Hydro Electric Project (NMHEP) in Uttarakhand's Mori on 27 September 2023.

This hydropower project is expected to generate 265.5 MU of electricity annually. To facilitate the evacuation of power from the Naitwar Mori HEP, the company constructed a 37-kilometre 220 KV transmission line from Bainol to Snail.

Green Financing Partnership

On 20 September 2023, SJVN entered into a memorandum of understanding (MOU) with Power Finance Corporation (PFC).

This MOU aims to provide financial assistance for a diversified portfolio of projects valued at approximately Rs 1,188.3 bn. These projects primarily focus on renewable energy and thermal generation.

The term loan financial assistance is tentatively proposed to cover 70% of the project cost, with the possibility of an increase for renewable energy projects.

Carbon Credit Partnership for Solar Power

SJVN, a state-owned power producer, has collaborated with carbon credits developer EKI Energy Services for the registration, issuance, and trading of international renewable energy certificates (I-RECs).

This collaboration is centred around SJVN's 1,500 MW Nathpa Jhakri hydropower project in Himachal Pradesh. I-RECs signify that one MWh (1,000 units) of electricity is generated from renewable energy sources.

These certificates can originate from various sources, including wind, solar, ocean energy, biomass, hydropower, landfill gas, aerothermal, geothermal, and landfill gas projects.

The registration of SJVN's Nathpa Jhakri hydropower project in the IREC registry mechanism is set from 1 January 2023 to 31 December 2027. SJVN anticipates an annual revenue of Rs 100 million from I-RECs.

Ambitious Future Plans

SJVN has ambitious plans to expand its renewable energy capacity. Over the next three years, the company aims to add 10,000 MW of renewable energy capacity.

This strategic roadmap includes the addition of 1,500 MW in the first year, 5,200 MW in the second year, and 3,300 MW in the third year. Currently, SJVN's installed capacity stands at about 2,100 MW, comprising two hydro projects, two wind projects, and four other solar projects.

Additionally, 16 projects with a total capacity of 4,500 MW are under construction. SJVN's ultimate portfolio envisions a capacity of 55,000 MW.

The management outlined the commissioning of 54 projects within the next three years, with 10 in the first year, 19 in the second year, and 25 in the third year.

A Close Look at the Financials

Over the past three years, SJVN has demonstrated impressive financial growth. Its revenue has seen a compound annual Growth Rate (CAGR) of 18%, while net profit has shown a degrowth of 17.6%.

These positive trends in revenue can be attributed to a series of consecutive order wins and the company's strategic capacity expansion. While increase in raw material cost and interest cost pulled the profit lower.

As a hydropower producer, SJVN operates with high profit margins, boasting a net profit margin of 46.3% in FY23.

Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in bn)	24.9	24.2	29.4
Revenue Growth (%)	-	-2.9	21.5
Net Profit (Rs in bn)	16.5	9.9	13.6
Net Worth (Rs in bn)	66.2	41	46.3

Data Source: Equitymaster

However, it's worth noting that the company's debt-to-equity ratio increased from 0.2 in 2021 to 1 in 2023.

This rise is due to increased borrowing to fund the company's capital expenditure plans. Despite this increase, SJVN remains fundamentally robust, benefitting from its status as a utility business with significant assets and strong government support.

Going forward, with the addition of 1,500 MW capacity, SJVN anticipates additional revenue of Rs 1.8 bn. Currently, its revenue stands at Rs 25 bn, and with the capacity expansion of approximately 1,500 MW, it is expected to reach Rs 28 bn.

Conclusion

The government's goal of meeting 50% of its energy demand from clean energy sources by the end of the decade positions public-sector enterprises like SJVN favourably.

SJVN has a robust background in hydropower generation and a successful track record in implementing wind and solar energy projects.

Several factors, including favourable financing opportunities, government support, increasing energy demand from residential and commercial sectors, and more, will drive the growth of the industry and strengthen power companies like SJVN.

While investment opportunities may seem promising, it is prudent to conduct thorough research and due diligence before investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...