We retain a 'reduce' rating on JSW Energy (JSWE) as valuations appear stretched in context of EPS stagnation after FY15, despite the government's nod for Kapurdi expansion. We base our target price for private independent power producers (IPPs), including JSW, on the milestone risk-adjusted free cash flow to equity (FCFE) of operational/feasible projects. We peg our 12-month target for the stock at Rs 69. At CMP, the stock trades at FY16f P/B (BPS = Rs 49.8) of 1.5x and P/E of 10.0x (EPS = Rs 7.4).

As per a stock exchange filing by JSWE, its lignite mining JV Barmer Lignite Mining Company (BLMCL) has received environment clearance from the ministry of environment and forests (MoEF) to increase the mining capacity of its Kapurdi lignite mines from 3.75mtpa to 7mtpa for a period of four years.

To put the event in context, BLMCL is 51:49 mining JV between Rajasthan State Mines and Minerals (RSMML) and RajWest Power (RWPL) JSWEs wholly owned subsidiary which houses the 1,040 MW lignite-fired project in Rajasthan. The Kapurdi mine provides the feedstock (lignite) for the Barmer project; electricity generated from the project is sold to the Rajasthan Discoms on regulated return tariffs. Total mineable lignite reserves at Kapurdi are 129.79 million tonnes.

Nomura