K.P.I Global Infrastructure Limited IPO Note

by admin IPO research, Research 7 years ago

KPI Global Infrastructure Limited a subsidiary of the KPI Group is fundamentally involved in the generation and supply of solar power. It has broadened its horizons by extending its operations in building, operating and maintaining solar power grids. The company is recognized as both an Independent Power Producer and a Captive Power Producer service provider. It has branched out into selling and leasing land.

As an IPP the company generates solar power under the brand name of ‘Solarism’ and supplies it directly to the end consumer. Titled under CPP service provider, the client leases the land from KPI and enters into a contract with them for erecting and installing the power plant. They also have a further agreement for Operations and Management with the client.

KPI currently has 2 operating units. The first unit comprises of the Solar Plant for 5 MW built on the leased land of Solarism Plant and the Solar Plant for 10 MW operated on the owned land of Solarism Plant. Unit two is still in the pipeline and is expected to be operational from July’19. It contains the Solar Project for 25 MW at Sudi, Samiyala and Tanchha village.

The cost estimated for the completion of the project is Rs. 132.03 crores. The existing installed solar power projects hold a capacity of 15 MW. KPI intends to boost this capacity to over 25 MW through Unit 2 to cater to increased power requirement. They have entered into bilateral PPA’s with industrial consumers for a period of 3 years. These industries include Mafatlal Industries Ltd, Best Paper Mills Pvt Ltd and Meghmani Organics Ltd.

KPI has built the Amod Substation which is a 13.5km transmission line built from Solarism Plant to GETCO. It is being upgraded from 66KV to 220KV. The upgradation will increase its reliability. Higher the voltage, the availability of power becomes more. It will also enhance the intake capacity

Object of the Issue:

The Net Proceeds of the Issue after deducting the issue expenses shall be utilised for the following agenda.

• To partly finance the 25MW solar power plant being built as Unit 2, at Sudi village, Samiyala village, Tanchha village in the Amod district of Bharuch, Gujarat.

• For general corporate purposes.

Promoter of the Company:

Mr. Faruk. G. Patel is the promoter of the company. He holds a stake of 65.11% pre-issue paid up equity share capital of the company. He also holds the designation of the Chairman and the Managing Director of KPI. Apart from KPI,Mr. Faruk has affiliated in the past with Vaishali Salt and Chemicals Private Ltd, where he held the position of being the Director.

His business career dates back to 1994 with the inception of KP Buildcon Pvt Ltd. The business was primarily engaged in logistics and construction of residential buildings. He entered the market of renewable energy in 2008 under which he exploited the market for potential green energy projects. The diversification proved out to be a successful one. The company under his leadership has also made their presence in the fields of manufacturing textiles, Fast Moving Consumer Goods (FMCG), dredging and Manufacturing and Galvanizing of Telecom towers.

Organizational Structure of KPI:

Business Overview:

KPI has 2 verticals of operation IPP and CPI. They have signed bilateral PPA’s at Rs.6.58 with the end consumers.
Unit 2 which is located in the Sudi, Samiyala and Tanchha village is expected to be operational in July’19. The project has a total output of 25 MW.
The in progress unit 2 has already signed bilateral PPA’s for the entire 25 MW.
The First IPO launched by the KPI Group was KPEnergy Limited (KPEL). KPEL was incorporated on January 8^th 2010. Recently it moved from the BSE SME to the main BSE trading platform. The scrip is currently trading at Rs. 209.50.Promoter of KPI Mr. Faruk Patel holds 48.61% stake in KPEL.
The company promoters have stellar history as their previous IPO of KPEL was recently shifted from BSE SME to BSE main trading platform.
KPI has the benefit of conducive government policies for renewable solar energy.
Under IPP vertical, the revenue it generates is directly linked with the current energy price which can increase or decrease according to the DISCOM prices.KPI receives revenue directly from the third party PPA’s. It gives 7% discount on power supply price.
Under CPP it generates revenue by assembling the Solar power units for captive customers and earns lease, rental and annual maintenance charges which are 25 years contracts.
Company’s power project is installed in a favorable geographical location with higher radiation and cooler ambient temperature resulting in sector leading 20% Plant load factor.
It has received term loan of Rs. 85 crore from Power Finance Corporation (PFC).

Issue Details:

The Initial Public Offer (IPO) is up to 49,92,000 equity shares of Face Value of Rs. 10 each.The issue size is of 39.93crore. IPO opens on 8^thJanuary’19 and closes on 11^th January’19. The issue price is fixed at Rs.80 per share including a premium of Rs.70. The minimum lot size is of 1600 shares. The shares will be traded on BSE SME platform from a tentative date of 22^nd January’19.

Overview of the Sector:

India owns the position of having the 5^th largest power generation capacity. It has also successfully become the 3^rd largest producer and consumer of electricity. Electricity consumption is inevitable, thus the government has enforced measures such as Rent of Roof Policy. Under rent a roof policy the developers will rent the roof and offer lease to each household and then feed solar power to the entire grid.

The Government’s target for FY2022 is to reach a capacity of producing 175 Gigawatt (GW) renewable energy. Out of which the contribution of solar energy stands at 100 GW. Wind is expected with the output of 60GW. Biomass and small hydro power will own 10GW and 5GW respectively. As per data released by the Central Electricity Authority (CEA) 9363MW of solar power capacity has been added in FY’18, this was an increase in the output capacity by over 69%. The industry CAGR for the period of FY10-18 stands at 5.69%.

Solar energy can be either be generated using the technology of Photovoltaic (PV) cells or by the means of the solar-thermal power. Under the process of PV cells the sunlight directly hits the solar panels and converts the light energy into power. When generating power through thermal process sun’s energy is used to fire up the steam turbine which in turn produces power; PV cells prove to be simpler in nature but includes complex procedures for wiring them at the plant site and has a higher Capex. In contrast to it, thermal power demands a lower investment but has high maintenance which increases the operating expenses.

India accommodates geographical area of 3.287million sq km. The intensity of radiation that india receives on an average is 200MW per km. This amounts to a radiation of 657.4million KW. The land utilised for agricultural, forests, residence, industries, snow-clad regions, inhabitable areas sum up to 87.5% of the region. The 12.5% land that is unutilized amounts up-to 0.413 million km which if optimally utilised has a potential to generate 8 million KW power. However solar energy also has a flip side. It requires substantial investment and has longer gestation periods. The energy that 1 sqm of lands generates in a day is equivalent to the energy produced by burning 1 kg of coal. This means that to reach the equivalent production level larger area of land will have to be acquired.

Financial Summary:

The net revenue for FY16 was realised at Rs.2,746.92 lakhs. For FY17 and FY18 it stood at Rs.2,576.03 and Rs.3,155.54 respectively. The RONW has declined from 57% in FY16 to 20% in FY18 due to heavy equity dilution from Rs. 3.5 crore in FY16 to Rs.12.94 crore in FY18.
In the same period the net profit posted was Rs. 767.97 for FY16, Rs.812.49 for FY17 and Rs. 1,140.92 for FY18.
For Q2FY19 the Net profit posted was Rs. 3.87 crore against the total turnover of Rs. 18.15 crore. Second half of the year witnesses higher profitability due to optimum radiation of sunlight the plant receives during the period.
Earning Per Share for Q2FY19 stood at Rs 2.99. For FY18 the EPS was estimated at Rs 9.39. For FY17 and FY16 it was Rs7.95 and Rs 8.09 respectively.
Due to companies unique and niche business operations the company has no listed player. Even for a new player it will take 3-5 years to reach at infrastructural level of KPI Global.
The IPO is currently valued at a P/E of 8.51x with a NAV of 43.80. EPS after dilution is coming at Rs 9.39.
Crisil has downgraded the ratings on the borrowings of KPI. The long term ratings have been downgraded from CRISIL BB+/Stable to CRISIL D. The short term ratings have been downgraded from CRISIL A4+ to CRISIL D.
The downgrade in the ratings is an indication of default of loan repayment in case of cash flow mismatch due to slowdown in the cash inflow from the business operations.