Money Tree

The salient features and extracts from the Red Herring Prospectus of the issue are given hereunder:

Issue Opens On : June 25, 2007
Issue Closes On : June 29, 2007
Issue Size : 3,40,00,000 equity shares
Face Value : Rs.10/-
Price Range : Rs. 17 to Rs. 20/-
Issue Type : Book Building
Tick Size : Re.1/-
Market Lot : 300
Minimum Order Qty : 300
Listing Stock Exchange : BSE, NSE

Objects Of the Issue :

To invest in Equity of MSM Energy Limited a wholly owned subsidiary, for setting up of two 10MW bio-mass based power plants in Parbhani and Amravati districts of Maharashtra respectively;
To meet working capital requirement for power trading;
To meet additional working capital requirements for its operations;
To meet the expenses of the Issue.

Basis for Issue Price :

Face Value : Rs.10/-
Issue Price : 1.7 Times(Lower Price Band) of the Face Value.
Issue Price : 2 Times(Higher Price Band) of the Face Value.
Issue Price : Rs. 17 to Rs. 20
EPS for the last financial year 2006-07 (Consolidated) : Rs 0.32
EPS for the last year 2005-2006 (Consolidated) : Rs 0.37
Weighted Average EPS for the years 2004-2007 : Rs 0.34

Industry PE ratio:

Highest : 80.30
Lowest : 5.20
Industry Average : 18.20

PE ratio of SPCL on the higher side of price band comes out to 59 times and on the lower side of the price band comes out to 50 times on the basis of weighted average EPS (Consolidated) for the last three years.

PE ratio of the Peer Group

GVK Power & Infra : 80.3
JP Hydro : 10.6
Energy Development : 17.4
Neyveli Lignite : 23.7
Gujrat Industrial Power : 5.2

Industry Overview :

The power industry in India has been characterized by energy shortages. In fiscal 2006-07,(up to December, 06) demand for electricity exceeded supply by an estimated 7.7% in terms of total requirements and 10.50% in terms of peak demand requirements. Although power generation capacity has increased substantially in recent years, it has not kept pace with the growth in demand or the growth of the economy generally.

According to the United Nations, India has one of the lowest electricity consumption levels in the world, at 355 units per capita in 2000, due in part to unreliable supply and inadequate distribution networks. This contrasts with 827 units per capita in China, 1,878 units per capita in Brazil and 12,331 units per capita in the United States in 2000.

Historically, Central and State government entities played the dominant roles in the development of the Indian power industry. However, capacity growth did not keep pace with demand, due to inadequate investment and the poor financial health of the state electricity boards. In recent years, however, in light of persistent shortages, the Government has taken significant action to restructure the industry and attract investment. This has included measures to restructure the state electricity boards and improve their financial health. In addition, the Government has liberalized policies relating to the generation and distribution
sectors.

Business Overview :

The Company was originally incorporated as Suryachakra Power Corporation Limited on February 28, 1995 in Hyderabad, Andhra Pradesh under the Companies Act, 1956.
Pursuant to a competitive bid floated by the A & N Administration in 1995 for establishing a thermal based power plant at Bamboo Flat, Port Blair, A & N Islands the Company was adjudged the successful bidder and awarded the contract to establish and operate a 20 MW Diesel Generating Power House under Electricity Supply Act on a BOOM (Build Own Operate and Maintain) basis.
On February 18, 2003 the Bamboo Flat power plant went through all the required acceptance tests and was declared complete in all respects and started commercial operations from April 2003 by providing continuous power supply as required by the A & N Administration. The said power plant was constructed by M/s. BSES Limited (presently M/s. Reliance Energy Limited under an EPCC Contract and the operations and maintenance is being looked after by M/s. Caterpillar Commercial Private Limited for which the Company has entered into an O&M agreement for a 15 years period, effective from May 12, 1999. All clearances such as pollution, environment, water, forests, height of chimney etc., were obtained by the A & N Administration and then transferred in the name of the Company.

History :

The Company was originally incorporated as Suryachakra Power Corporation Limited on February 28, 1995 with registration no. 01-19554, in Hyderabad, Andhra Pradesh under the Companies Act, 1956 and obtained certificate of commencement of business on March 16, 1995. The Company was converted into a private limited company with effect from August 9, 2000. Pursuant to this, the name of the Company was changed to Suryachakra Power Corporation Private Limited. The Company was re-converted into a public limited company with effect from September 8, 2005 in terms of Section 31(1)/44 of the Companies Act, 1956. Pursuant to this, the name of the Company was changed to Suryachakra Power Corporation Limited. The Company was promoted by Dr. S.M. Manepalli and his associates.

Financial Information :

Total income of the Company for the year ended 31st March, 2007 : Rs. 9491.27 lacs
Total income of the Company for the year ended 31st March, 2006 : Rs. 8679.05 lacs
Total income of the Company for the year ended 31st March, 2005 : Rs. 5915.32 lacs

Net profit (after tax) for the year ended 31st March, 2007 : Rs.171.83 lacs
Net profit (after Tax) for the year ended 31st March, 2006 : Rs.78.43 lacs
Net Loss (after Tax) for the year ended 31st March, 2005 : Rs.211.66 lacs

Comments :

The issue is priced very aggressively between 50 to 59 times of its weighted average EPS for last three years which is much above the industry average of 18 times. The company is placed in a good sector which has a strong growth potential in the next 5 to 6 years and the company does not face any competition in A & N Islands but it would take some time for its fundamentals to catch this kind of pricing. It would not be the kind of issues which fly on listing. Its better to buy an already listed power stock.