BULL POINTS:
■ Indian power deficit is driving investment
■ Capacity set to grow rapidly
■ Agreements with major power equipment makers
BEAR POINTS:
■ More fund-raisings likely
■ Wind power can be unpredictable
Shortages of electricity are a major headache for India's government and a threat to the country's growth. The government's latest five-year plan forecasts a massive expansion in generating capacity; and renewable power - primarily wind power - will play a major part. That should put wind power producer Caparo Energy in a promising position.
Installed wind power in India has the capacity to generate 14.2 gigawatts (GW). That represents three-quarters of India's renewable power capacity and makes the country the world's fifth-largest wind power market. But the Indian Wind Energy Association estimates that the country has the potential to install 65GW, which means there is plenty of capacity for Caparo to go for.
| IC TIP RATING | |
|---|---|
| Tip style | Speculative |
| Risk rating | High |
| Timescale | Long term |
| What do these mean? Find out in our | |
Caparo has secured a pipeline of wind assets that should establish it as one of India's major independent renewable power producers over the next five years. It also has contracts with major Indian wind turbine makers Suzlon and Gamesa. Under these, most of the development risk - and, with it, the working capital burden - will be carried by its partners. Caparo will buy the assets when they are close to completion. By doing this Caparo will, in a relatively short time, be able to boast a significant generating capacity.
Its early-stage pipeline is with Suzlon and the first 42 megawatts (MW) of capacity is already producing power. A further 25MW will be commissioned in August and another 34MW by the end of the year. A further 400MW should follow by March 2012, giving the company 500MW at the beginning of its next financial year. That should be sufficient to generate useful amounts of cash in the year to March 2013, at the end of which another 500MW of capacity should have come on stream. According to management, that should catapult the company to number one wind power producer in India within two years. Caparo's bosses also reckon the company has some of the best sites available - an important factor because wind can be quite an unpredictable source of power generation.
| ORD PRICE: | 111p | MARKET VALUE: | £182m | |
| TOUCH: | 107-111p | 12-MONTH HIGH/LOW: | 124p | 91p |
| DIVIDEND YIELD: | nil | PE RATIO: | 7 | |
| NET ASSET VALUE: | † | NET CASH: | † | |
| Year to 31 Mar | Turnover ($m) | Pre-tax profit ($m) | Earnings per share ($c) | Dividend per share ($c) |
|---|---|---|---|---|
| 2011* | nil | -2.0 | na | nil |
| 2012* | 14.2 | 1.4 | 0.9 | nil |
| 2013* | 146.8 | 50.4 | 26.0 | nil |
| % change | +934 | +3,500 | +2,789 | - |
Normal market size: 2,000 Matched bargain trading Beta: 0.3 *Mirabaud estimates †Meaningful figures unavailable £1=$1.63 | ||||
Caparo has already secured orders for the first 1GW of capacity under fixed-price contracts with Suzlon, and a recent fund-raising means finance for the first 700MW of this is secured. The contract with Suzlon allows for a further 2GW of wind-farm assets. Agreements are also in place with Gamesa for 2GW-worth of wind turbines, and Caparo has secured leases over land sufficient to install 3GW of capacity. All that activity means its longer-term target to install 5GW of capacity by 2017 - enough to give it real clout - is feasible.
Power will be sold through a mixture of agreements with state power companies and through direct sales to the private sector. Crucially, Caparo says it can produce power profitably without any subsidies, although some are available, including carbon credits, which could add further value.
