Proposed public issue of 34 million equity shares at a targeted price of Rs 15-18 per share aggregating Rs 510-612 million
CRISIL has assigned a CRISIL IPO grade "2/5" (pronounced "two on five") to the proposed initial public offer of Suryachakra Power Corporation Ltd (SPCL). This grade indicates that the fundamentals of the issue are below average relative to other listed equity securities in India.
The grading reflects the revenue inflows from SPCL's 20MW DG based power plant in Port Blair, Andaman & Nicobar (A&N) islands, under a 15 year power purchase agreement signed with the A&N Administration effective in 2003 and the revenue growth potential from its planned biomass based power plants of about 20MW each in Chattisgarh and Maharashtra.
The grading is constrained by the fact that the promoters do not have any prior experience in setting up and operating a biomass based power plant and significant raw material price uncertainty associated with biomass based power. The grading also reflects the prevalent steep costs of the company's DG based power in A&N that would provide a strong incentive to the A&N Administration to look for cheaper alternatives.
CRISIL notes the chequered track record of the promoters in running businesses in the past - specifically that two of their companies that were engaged in the aquaculture business are now defunct. These companies, which were listed on the Bombay and Hyderabad stock exchanges in the 1993-1994 period, had large defaults on their debt obligations in the 1996-1997 period (subsequently settled at a discount) and were delisted from BSE on January 14, 2004 (the listing with the Hyderabad Stock Exchange still continues). It may also be noted that the timing of the proposed IPO is influenced by the company's arrangement with a private equity investor, Opulent Venture Capital Trust, which currently holds a 4.7 per cent equity stake in SPCL. Opulent Venture Capital has linkages with the SREI group, which also includes SREI Capital Markets Ltd. - one of the Book Running Lead Managers for the proposed IPO.
About the company
SPCL was incorporated in February 1995. In August 2000, the company was converted into a private limited company. Subsequently, in September 2005, SPCL was re-converted into a public limited company. SPCL is the sole private IPP in A&N supplying electricity to Port Blair and surrounding villages, with its 20MW diesel based power plant, at Bamboo Flat in Port Blair. The company is setting up four biomass power projects of about 10MW each - two in Chattisgarh through separate subsidiaries and two in Maharashtra through its subsidiary, MSM Energy Ltd. The present IPO is being made to fund the Maharashtra project. For the year ended March 2006, SPCL's consolidated net profit was at Rs 17.2 million on an operating income of Rs 891 million, as compared to consolidated net profit of Rs 20.2 million on an operating income of Rs 656.3 million in 2004-05.
About CRISIL's IPO grading
A CRISIL IPO grade represents CRISIL's overall assessment of the fundamentals of the issue graded in relation to other listed equity securities in India. CRISIL IPO gradings are assigned on a five-point scale from 1 to 5, with a CRISIL IPO Grade 5/5 indicating strong fundamentals and a CRISIL IPO Grade 1/5 indicating weak fundamentals. A CRISIL IPO grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security..
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