Near-term growth may slacken
Despite elections in FY14, the management expects some moderation in merchant demand, especially in Maharashtra, which has seen some capacity additions in the recent past. This could exert pressure on PLFs (already witnessed backing down in Q4) of merchant units and also on the merchant realisations for the coming year. The final tariff order for Barmer plant is a key development to watch out for. Earnings continue to remain highly sensitive to spot coal prices, forex and merchant rates. We have cut our FY14 and FY15 earnings by 15% and 22% to factor in lower plant load factor (PLF) for merchant plants in FY14 and lower merchant rate (R4 per kwh) for FY15. At the current market price, the stock trades at 1.5x (times) and 1.4x our FY14e and FY15e P/BV (price-to-book value), respectively. We maintain Hold on JSW Energy with a SOTP(some-of-the-parts)-based revised target price of R54 per share.
Sustained merchant rates, benign coal cost aids profits: JSW Energy?s Q4FY13 PAT was lower than our estimate of R3.44 bn but higher than consensus estimate of R3.1 bn. Losses booked by associate company worth R116m was offset by higher than estimated other income of R617m and R90m prior period income booked in Raj West Power. Sustained merchant (2.6 Bus?billion unis?sale) prices at an estimated price of R4.5 per kwh during the quarter, benign imported coal cost led to robust y-o-y growth in profits.
Operational capacity at 3,140MW: The company commissioned the remaining units 5-8 (540 Mw) during the quarter to close the year with an operational capacity of 3140MW. Final clearance for enhanced lignite mining from the operational mine, expected in H1FY14, should meet the fuel requirement for the entire 1,080 Mw at Barmer. Favourable tariffs helped Raj West power post profit of R210 million for the quarter. Pipeline capacities are in the initial stages of development and some time away from getting operational limiting near term growth. However, most if its capacity is operating on expensive imported coal, leading to sharp increase in costs. High exposure to merchant sales increases the sensitivity of its earnings.
