SJVN (NS:SJVN), a key player in India's power sector, reported weaker-than-expected financial results for the fourth quarter of FY24. The company's consolidated adjusted profit after tax (PAT) was INR 870 million, significantly below the expected INR 2.4 billion—a 63% miss. This shortfall was mainly due to lower incentive income and higher-than-anticipated other expenses.
The company faces further challenges with delays in commissioning two major projects. The 1,320MW Buxar thermal plant and the 900MW Arun-3 hydro plant have both been postponed by three to six months. The Buxar project, originally set for completion between June and September 2024, is now expected to be finished between December 2024 and March 2025 due to land acquisition issues. The Arun-3 project has been pushed from February 2025 to October-November 2025. These delays, though partly accounted for in current estimates, could still negatively impact future earnings and fair value if they extend further.
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On a positive note, SJVN's renewable energy pipeline has expanded to 7.2GW, with most projects slated for completion within the next two years. Management has also expressed intentions to monetize the renewable business this fiscal year, potentially unlocking significant value. However, at the current valuation of 3.3 times the price-to-book value (P/BV) for FY26, the risk-reward profile appears unfavorable, with potential for consensus earnings cuts if project delays persist.
Following the Q4 FY24 results, SJVN’s earnings estimates for FY25 and FY26 by Goldman Sachs (NYSE:GS) have been revised down by 6% and 5%, respectively. The 12-month sum-of-the-parts (SoTP) based target price (TP) has been adjusted to INR 75 per share, up from INR 72.5, due to a larger cash balance. This new TP values SJVN at an FY26E P/BV of 1.8 times, compared to the long-term average of 1 time, while the stock currently trades at 3.3 times.
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While the TP has been increased by Goldman Sachs, it’s still significantly lower than the CMP pf INR 143.15. InvestingPro’s revolutionary fair value feature is also estimating a potential downside of 38.4% to the true worth of INR 88.25 per share.
In fact, the highest valuation (from 10Y DCF Growth model) is INR 113.15, which is also noticeably higher than the CMP. Investors can look at the valuations from individual models in InvestingPro and take their decisions accordingly.
SJVN, a joint venture between the Government of India and the Government of Himachal Pradesh, is the second largest standalone hydropower developer in India. The company aims to expand its installed capacity significantly in line with India's renewable energy goals. Despite its cost of debt advantage and substantial market share in renewable energy auctions, the current share price already reflects these positives. The recent 100%+ rally in its stock price from July to December 2023 has re-rated its 1-year forward P/BV multiple from 1 to 2.5 times.
Potential earnings slippage due to project delays poses a risk. Even under a bullish scenario, where all opportunities materialize and the renewable business ramps up significantly, Goldman Sachs and InvestingPro’s valuation for SJVN remains below the current price, suggesting an unfavorable risk-reward balance.
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