CRISIL Equities Assigns IPO Grade 4/5 to Orient Green Power Limited
| July 30,2010 02:04 pm IST
CRISIL Equities has assigned a CRISIL IPO grade of “4/5” to the proposed initial public offer (IPO) of Orient Green Power Limited (OGPL). This grade indicates that the fundamentals of the IPO are above average relative to other listed equity securities in India.
However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument’s future market price or its suitability for a particular investor.
The assigned grade reflects OGPL’s ability to leverage the opportunity present in the power market because of power deficit, which is expected to remain about 4.0% over the medium term. Most of OGPL’s committed projects are in an advanced stage of implementation. The grade factors in the Indian policymakers’ commitment to promote the renewable energy industry through fiscal and other incentives like RPO (Renewable Purchase Obligation) and RECs (Renewable Energy Certificates). The grade is also supported by the fact that the management has shown its ability to acquire plants and improve their operational efficiency as well as set up new capacities in a timely manner. Further, OGPL has the backing of its co-promoter Shriram EPC, which has experience in handling EPC contracts for renewable-based plants.
The grade is constrained by the poor financial health of State Electricity Boards, OGPL’s main customers.
Also, the cost of generating renewable energy is higher compared to conventional sources, which increases OGPL’s dependence on regulatory support like RPOs and RECs. The success of any biomass plant critically depends on the adequate availability of locally available fuel (from agricultural waste). Though OGPL carefully selects the site and policy protection does not allow a new plant to come up within 70 km radius, it is exposed to fuel risk in case a new biomass plant comes up near the existing OGPL plant.