Shares of Suryachakra Power have Little Downward Risk

Shares of Suryachakra Power have Little Downward Risk

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Shares of Suryachakra Power have Little Downward Risk

Shares of Suryachakra Power have Little Downward Risk
Shares of Suryachakra Power have Little Downward Risk | Source

Shares of Suryachakra Power have Little Downward Risk


Low priced share

Suryachakra Power has produced average results for the quarter ended 30.09.11 as compared to the previous quarter. Revenue and net profit have marginally risen. The shares of Suryachakra Power are traded in the Indian stock markets at a low price of Rs.3.53 (BSE). It is uncommon that a profit making company is trading at a low price. What is the reason for it?

Memorandum of Understanding with American company

Suryachakra Power has signed a Memorandum of Understanding with the US company American Bio Sources (ABS) and Environmental Finance Corporation of USA through its 100% subsidiary Suryachakra Global Ventures Ltd based in Hong Kong for implementing renewable energy power projects. The Memorandum of Understanding is for setting up power projects in India with a capacity of upto 500 MW. The partners will be floating a joint venture for starting these power projects and the stake of Suryachakra Power in the joint venture will be 50%. The renewable energy projects will use solar power and biomass. Exim Bank of USA has approved a $200 million funding for American Bio Sources for setting up renewable energy projects in India. The power projects will be implemented on a BOOT (Build, Own, Operate and Transfer) basis.

Setback for the coal-based power project

But there is a setback also for Suryachakra Power. The Ministry of Environment & Forests has refused permission for the company to set up a power project in Madhya Pradesh State. The coal-based power project was for producing 1320 MW of power every year. The power project was supposed to be implemented by the company’s subsidiary Suryachakra Power Venture. The Ministry of Environment and Forests has been denying or cancelling permission for the power projects based on environmental objections. The power-starved industries are unable to do anything in this matter. In 2010, the government cancelled the environmental clearance issued to NCCL (Nagarjuna Construction Company Ltd) for its power plant with capacity of 2640 MW to be set up in Srikakulam District of Andhra Pradesh. The government also refused permission for the Bhavanapadu Thermal Power project to be set up in the same Srikakulam District in Andhra Pradesh by East Coast Energy Pvt Ltd. Therefore refusal of permission to Suryachakra Power for its power project is not a surprise decision.

Power project area overlaps a wildlife sanctuary

The main objection to the power project of Suryachakra Power in Madhya Pradesh is that the project area may fall within the buffer area of a proposed wildlife sanctuary namely Sanjay Gandhi Tiger Reserve area yet to be set up in Sidhi District of Madhya Pradesh State. Now Suryachakra Power is required to secure a no-objection certificate from the Wildlife Department.

Tie-up with a Finnish company

Suryachakra Green Power, a subsidiary of Suryachakra Power, and WinWinD have partnered to set up 250 MW wind energy farms. They are also trying to rope in a strategic partner in the project. WinWinD belongs to the Finnish WinWinD Oy group. The joint venture will set up wind farms in Dharapuram in Tamil Nadu State. Tamil Nadu has the maximum installed capacity of wind farms totalling more than 5500 MW. Suzlon is the largest wind energy producer in India. The investment cost of the wind power project will be around $350 million (Rs.1575 crore). The company is expecting some European agency to join the project. 26% equity has been reserved for this agency which is yet to be identified. Suryachakra Power will have 54% equity and the remaining 20% will be allotted to WinWinD. The project is planned to commence operations in April 2012. Dr S. Manepalli is the Managing Director of Suryachakra Power. Suryachakra Power has issued GDR for $25 million to be listed in the Luxembourg Stock Exchange.

Little downward risk

There is no fancy for the company’s shares in these depressed stock markets. However, at a low price of Rs.3, there is little downward risk for the investors. In fact it may offer gains in the short term itself.

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