Jaiprakash Power: QIB to lead 7.5% dilution

The company might raise additional funds through QIB route at higher share prices

Jaiprakash Power Venture's shares fell by 6.39% to Rs 30.75 per share on Wednesday after the news of Rs 3,500 crore qualified institutional buyer (QIB) leading to 41.7% equity dilution. However contrary to the market reports, the management said that the dilution will be around 7.5%, which is based on the base QIB amount of $125 million at the floor price of 31.93%.

Even at the upper end of QIB option of $175 million or Rs 950 crore the dilution works out to 10.3% against the markets speculation of 41.7%.

"The markets have taken it mistakenly, Rs 3,500 crore is the outer limit of QIB, the company may or may raise that much amount. This is also a reason that the dilution may not be as much as many interpreted," Said market expert SP Tulsian.

Analysts also said that the company may look to raise funds in a scattered manner and if they were to raise the whole amount not only the dilution but promoters stake too will fall significantly.

It is also believed that the company might raise additional funds through the QIB route at higher share prices because that will lead to lesser dilution and impact on the earnings.

Meanwhile, the current tranche of the fund raising will only hit the earnings marginally. For instance, if we take 7.5% dilution, the impact on the FY14 EPS will be marginal.

As against the earlier EPS estimate of about Rs 3.46 per share in FY14, it will now stand at Rs 3.2 per share. Even at the new EPS, the price to earnings ratio works out to 10 times which is reasonable given the growth and profile of the company.  

Importantly the analysts believe that this should not worry investors given that some of the money raised will be invested in power projects which have near term visibility and reflect in the earnings in the next two years.

The company's installed power generation capacity is expected to increase 1700 mw in FY12 to 4180 mw in FY15. This is also a reason that analysts are expecting it to double each year over the next two years and cash flow to support the equity requirements.

"The company has invested sufficient capital in upcoming projects and incremental requirement is limited. This provides visibility on upcoming capacity–and supports our forecast of a 56% annual growth in operating cash flows over FY12-15 to Rs 2700 crore," Says Abhishek Puri who is tracking the company at Deutsche Bank in a note to investors.