OPG Power Ventures PLC is an FTSE AIM All-Share listed Company engaged in power generation assets in India. Moreover, the Company has grown from 20 MW of generating capacity to 476 MW. The Company got listed on AIM Market in May 2008.

On 29 October 2021, OPG will hold the Annual General Meeting.

Growth Prospects

• World Bank Forecast: The World Bank had revised the outlook and increased India's FY22 economic growth forecast at 8.3%, driven by higher spending on infrastructure, rural development & health services and a stronger-than-expected recovery in services.
• Strong Claims Collection: The Company had collected around £5.70 million from customers with respect to historic contractual claims post the end of FY21.
• Booming Power Sector in India: Driven by the robust electricity demand, the ICRA rating agency has estimated Indian electricity demand growth at 6.0 per cent for FY22 on a year-on-year basis. However, it witnessed a marginal decline of around 1% for FY21.

Key Risks

• Surge in Coal Price: The supply chain disruptions from China had caused a surge in coal price during FY21.
• Adverse Weather Conditions: The adverse weather conditions caused by the excessive rainfall in Indonesia resulted in an increase of international coal prices.
• Substantial Decline in Revenue: The Covid-19 disruptions in India led to a decline in revenue during FY21. Moreover, the Covid-19 cases reached a peak in India during May 2021, which may dent top-line business during H1 FY22.
• Rise in Interest Rates: The recent hawkish comments made by several central governments regarding a hike in the interest rates could make fundraising difficult for the Company.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of OPG Power Ventures PLC.

Gupta (Arvind) is the most significant shareholder as it holds nearly 206.43 million shares as of 30 September 2021.

FY21 Financial & Operational Highlights (for 52 weeks ended 31 March 2021, as of 30 September 2021)

(Source: Company result)

• Impact of Covid-19 Pandemic: The negative outbreak of the Covid-19 pandemic during FY21 had reduced the total revenue to £93.8 million during FY21.
• Improvement in Profitability: OPG had increased the profit before tax from £14.5 million in FY20 to £21.6 million during FY21.
• Reduction in Net Debt: The Company had strengthened its financial position by reducing the net debt from £53.4 million as of 31 March 2020 to £16.2 million as of 31 March 2021.

Financial Ratios (FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 21 October 2021, at 08:00 AM GMT+1, OPG’s shares were trading at GBX 11.75, same as the previous day closing price. Stock 52-week High and Low were 22.00 and GBX 9.70, respectively.

From a technical perspective, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI stood at ~39.57.

Over the last one year, OPG’s stock price has delivered a positive return of ~18.51%, and it has outperformed the FTSE All-Share Gas, Water & Multi-Utilities index (benchmark sector) with a return of about 15.04%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

OPG had posted very strong cash generation and achieved a significant reduction in debt during FY21. However, the surge in coal price and increase in freight rates because of the increased imports of coal and other goods by China and other Asian countries would create a short-term headwind for the Company. Nonetheless, China’s coal futures dropped significantly as the Chinese Government decided to intervene, ensuring that production mines operate at full capacity to bring coal prices to normal levels.

The strong foundations of OPG would support sustainable growth and tackle the ongoing COVID-19 situation. Since OPG is a penny stock with a market cap of less than £50 million, it would be for the clients to consider this stock based on the risk appetite as it may undergo adverse volatile movements due to the rising bond yields, increasing inflation rates, and the Evergrande fiasco. Overall, the Company seems well-equipped to generate long term returns for the shareholders by paying down expensive borrowings.

Considering the robust bottom-line business during FY21, strong cash generation, reduction in net debt, the strong outlook of India, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on OPG Power Ventures PLC at the current price of GBX 11.75 (as on 21 October 2021 at 08:00 AM GMT+1), with lower-double digit upside potential based on 10.53x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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