KSK Energy likely to give good returns

Nikunj Dalmia of ET Now collates recommendations from brokerages to come up with an outlook on KSK Energy. Excerpts:
The reason why KSK Energy could be a buzzing stock is very simple. Markets always vote for one simple thing, which is the rate of change and for KSK Energy, things of late have been rather awful. But awful could soon become better or awful could become bad. Why? Because there is a buzz that they are looking at raising debt in one of their global subsidiaries in order to reduce their total debt burden.

That really could be the trigger point for fixing the balance sheet. Also, there were some structural issues for the company: coal linkage, the kind of policy or the power purchase buying or power purchase policy which was followed by the Maharashtra Government. My sense is that both those issues will be fixed.

The company now is looking at changing the way they acquire coal and if they are able to commission a new coal linkage supply chain, that automatically will reduce their entire cost by about 15% to 20%.

They also have emerged as one of the big L1 bidders for a supply agreement with the UP Government where the merchant power business could be the big upside for KSK Energy.

Valuations? Not stretched it all. Based on FY-15 estimates, with the assumption that they are able to reduce their debt and capture only two quarters of upside from the merchant power business, the stock is trading at a PE multiple of less than eight times.

The market capitalisation? About $1 billion. Ownership pattern? Decent. Local mutual funds do have a limited exposure to this one. So focus on this one. Markets clearly are now in a mood to revisit cyclical stocks and look at companies where either the balance sheet change is happening and where the rate of change really could move. So this one is on the radar for lot of HNI investors as well and my sense is that level of 70 to 75 maybe before December should be around the corner.