Saturday, June 14, 2014

Veer Energy and Infrastructure Ltd: A Steady Upmove Expected
CMP: Rs.5.28
Introduction: Veer Energy  and Infrastructure Ltd (VEIL) develops, implements, finances and operates large scale projects in the renewable energy sector, especially in wind energy. Currently, Veer Energy wind farms in operation and construction represent a substantial reduction in carbon dioxide emissions annually. The company is currently active in western region of India with approximately 75 MW successfully commissioned. Significant future growth is expected in both core and new markets, supported by a large development pipeline and Veer Energy’s network of joint development ventures with world class local developers & contractors. Veer Energy’s development of wind energy is consistent with what is prescribed by the Kyoto Protocol. Once in operation, wind farms are a virtually emission free energy source, providing clean and sustainable energy. Veer Energy works to be actively involved in all key phases of wind farm development, finance, construction, and operation.
Basically, the company develops infrastructure for the wind farms and is not into manufacturing of wind turbines. The company identifies a place based on wind analysis. It then develops a complete infrastructure for these wind farms at that location, which are then sold to investors as well as to various wind turbine manufacturers. Investors have an option of selecting the wind turbines they want as the company gives them the required infrastructure.

Shareholding PatternThe promoters hold 35.51% of the shares of the company,  while the general public holds 64.49% of the shares of the company. Among the general public Shriram Credit Company Ltd (5.13%), Shriram Insight Share Brokers Ltd (1.52%), Sparrow Asia Diversified Opportunity (7.03%) and Anand Rathi Global Finance Ltd (1.82%) holds substantial stakes in the company. 

Financials: For March 2014, the operating income witnessed a growth of 18.3% on a year on year (YoY) basis during the quarter. The expenses were up at a higher rate of 20.2% YoY during the same period. 
  • The rise in expenses led to a fall in the operating profit by 17.6% YoY during the quarter. The operating margins declined to 3.5% as compared to 5% in the March 2013 quarter. 
  • Depreciation charge increased by 19% YoY, while interest charges declined by 86% YoY for the March 2014 quarter. 
  • At the bottom-line level, the company’s net profit declined by 4% YoY to Rs 4.8 m led by higher expenditure in the quarter under review. 
  • The company’s board recommended dividend of Re. 0.06 per share for the financial year ending March 2014.
  • At the current price of Rs.5.28, the company’s stock trades at 13.89 times its trailing twelve month earnings. The Industry P/E is 16.44.
(i)  The main Business of the Company is to create infrastructure development facilities for the installation of Wind Turbine Generator. As one of the pioneer in this field, the Company is very well positioned to take advantage of ever increasing demand for the renewable energy resources. According to Hindustan Times, 9 June, 2014:
  • The Narendra Modi-led government has started work on a plan to ensure half of all homes in major cities receive some power from solar or wind energy sources by 2019.
  • The plan includes fresh incentives to encourage companies and individuals to invest in renewable energy sources and setting up giant solar plants in states such as Rajasthan and Gujarat.
  • The decision to give a big push to renewable power sources was behind the Prime Minister’s decision to bring the ministries of conventional and renewable power under Piyush Goyal. Sources told HT that Modi asked Goyal to go big on renewable energy.
  • This is keeping in line with the progress made in generating green energy by Gujarat during Modi’s tenure as chief minister. Gujarat implemented the Jyotigram Yojana that provided 24/7 power to each household. The scheme depended on solar, wind, biomass and waste as energy sources to generate about 25,000 MW annually.
  • Goyal has promised to replicate this Yojana and was in the state to study Gandhinagar’s success story.  After meeting the PM, lieutenant governor of Delhi Najeeb Jung also sent a team to study the Gujarat model this week that resulted in fresh power proposals for the Capital.
In view of this development, the management is hopeful to achieve better results in the coming years. It is also exploring the possibilities of starting operations in the state of Maharashtra, Gujarat and Rajasthan, in full steam. 

(ii) During FY13, the company has commissioned 28.90 MW in Rajasthan. Total MW commissioned till date is 59.30 MW out of 79.5MW of total order in Rajasthan by March 2013. The balance was commissioned in the year 2013-14.

(iii) Moreover, it has some relation with Southern Wind farm Ltd, which is an ADA Group Company floated by Anil Ambani. It is also a vertically integrated company and at a market cap of only Rs.37.56 Cr, it could be a good takeover candidate

(iv) India is one of the developing country, and the scope for improvement in India’s energy system is vast. Renewable energy currently makes up a negligible share (0.36%) of total primary commercial energy supply while 96.9% of such supplies come from fossil fuels and 2.76% from hydro and nuclear resources. The non-commercial combustible biomass and wastes which contributes to the extent of 24.5% of the total energy supplies are excluded in this balance. Wind Energy is where India competes globally in manufacturing and deployment in the present scenario. With these the market grew to be third largest in the world riding on the success of strong policy and regulatory framework. In 2011, India surpassed 3,000 MW in annual installations. This marked a 138% growth over a two year horizon; a remarkable achievement in times of global economic depression.

(v) Wind Energy is becoming increasingly popular because:
  • It is one of the most environment friendly, clean and safe energy resources. 
  • It has the lowest gestation period as compared to conventional energy. 
  • Equipment erection and commissioning involve only a few months. 
  • There is no fuel consumption, hence low operating costs. Maintenance costs are low. 
  • The capital cost is comparable with conventional power plants. For a wind farm, the capital cost ranges between 4.5 crores to 5.5 crores, depending on the site and the wind electric generator (WEG) selected for installation.
(v) With the Crude Oil prices shooting above $100 per barrel, the prospects of wind energy looks bright. Also, it has an equity capital of only Rs.7.11 crore and from that around 70% is blocked for trade (or there are very low floating stocks in the market). This gives premium to the stock price. 

(vi) The book value of the shares of the company is Rs.6.16 (CMP: Rs.5.28) while the book values some of its peer group companies like Suzlon Energy Ltd is Rs.9.72 (CMP: Rs.32.5), KSK Energy Ventures Ltd is Rs.64.25 (CMP: Rs.100) and NTPC is Rs.97.49 (CMP: Rs.153.45). This gives the share much room for appreciation. 

(vii) The Company has floated a 100% subsidiary "Veer Enterprise-GMBH" in Germany to explore the possibility of expansion in the field of non conventional energy with the help of collaboration with any company in this field with a wide experience and capital resources. The management hopes to turn this company into black soon. 

(viii) According to Projects Today, Veer Energy  and Infrastructure Ltd, in association with Shruti Power Projects, has been sanctioned a loan from Indian Renewable Energy Development Agency (IREDA) for its wind power project at Vinjalpur, in Jamnagar district of Gujarat. IREDA has signed a loan agreement worth Rs.52.56 crore with Veer Energy’s subsidiary, Shruti Power Projects, for setting up the 12 MW wind-based power project at Vinjalpur.
The project is being set up at a cost of Rs.75.60 crore. The company is expecting to commission the project by 31 August, 2014.

Conclusion: Veer Energy and Infrastructure Ltd, the Mumbai-based wind-power developer, bought solar panels for its first project in India from U.S.-based New Millennium Solar Equipment Corp, in 2012. At that time Veer Energy planned to install 400 thin-film panels of 58.5 watts each for a rooftop project in the Sanand district of the western Indian state of Gujarat. 
However, according to my close sources, now it has decided to concentrate more on the development of Wind Power. 
Besides, the share has not taken part in  a major way in the whirlwind rally post NDA government assuming office in Delhi. Also, the scrip has corrected sharply from its recent high of Rs.7.64 made on 12 June, 2014. The stock could be accumulated near the supports of Rs.5.10-5.20 for targets of Rs.7-8.4 in the short term. It is a Re.1, Face Value scrip. 
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