JSW Energy’s (JSWE) Q4FY17 EBITDA was down 48% y-o-y/11% q-o-q to Rs 5.9b due to lower generation (demand), shutdown at Ratnagiri and higher fuel cost. PAT was down 92% y-o-y/+13% q-o-q to Rs 242m. For FY17, EBITDA declined 20% y-o-y to Rs 33b, while PAT fell 55% y-o-y to Rs 6.3b.
Blending domestic coal up to 50% at Ratnagiri and Vijaynagar would help if international coal prices are upwards of $70 -75/tonne (subject to e-auction coal prices; Exhibit 3, 4 and 5). It would act as a hedge against rising coal prices.
Of the contracted capacity of 704MW, PPA for 200MW was pending approval of capital cost by CERC (on March 30 2017). The PPA is now expected soon (likely with Punjab).
According to management, the 650MW PPA with Karnataka could be extended (expires by May 2017) as power availability from state gencos has reduced due to water shortage and maintenance. We estimate Vijaynagar to run at 50% PLF and realisation of Rs 3/kWh for FY18, as we believe the extension, if any, will be for a very short period due to addition of new generation/transmission capacities.
We have upgraded EBITDA by ~5% to ~Rs 35b and PAT by ~2x to Rs 2.9b for FY19E on marginally higher merchant realisation and lower interest cost. Bina and JPL acquisitions are included in our forecast. At current stock price, JSWE’s merchant capacities are valued at ~Rs 40m/MW (Exhibit 7), at a discount to replacement cost of Rs 60m/MW. Balance sheet is strong at 1.4x D:E, with annual FCF (post- interest) generation of Rs 11 -14b on support from contracted capacities. We roll forward to FY19E valuation at SOTP- based TP of Rs 88.
The ability of discoms to pay has improved. As financial health improves their off-take is also expected to increase. Expect more medium-term PPA as demand improved, led by UDAY. Uttar Pradesh has announced aggressive plans to ensure 24×7 power supply in the state in the next 1 -2 years which should drive strong increase in demand.