The lower imported coal prices in Q4FY19 notwithstanding, the volatility in imported coal prices over the past few quarters and the falling merchant sales will impact JSW Energy’s FY20 operating margins, analysts said.
Emkay Research noted the company’s exposure to volatile imported coal prices could continue to deter its margins going ahead. “We reduce our earnings estimates for FY20/FY21 by 17.5%/26.3% respectively, factoring in lower merchant realisations and rupee depreciation.”
The brokerage has lowered JSW Energy’s FY20 Ebitda estimates by 3.2% to `3,460.4 crore, while the Ebitda margins estimate for the period was reduced to 37.4% from 39.6% earlier. “Key risks to our assumptions remain correction in international coal prices (due to slow down in Chinese demand) and higher merchant power rates (due to rise in domestic demand),” analysts at the firm said.
JM Financial said while FY20 may see a sharp jump in JSW Energy’s profits owing to benefits of lower coal prices and capacity tie-ups, the company still remains vulnerable to coal price and merchant price movements for 18% of its capacity. “A further sharp fall in merchant rates or accentuated rise in coal prices will impact earnings adversely. Inability to sign long-term PPAs at conducive prices will also lead to falling earnings. Expensive acquisitions or non-value accretive new business forays can further dent cash flows,” the analysts said.
However, Kotak Institutional Equities is hopeful of a positive performance from the company in FY20 on the back of lower coal prices and new medium to long term power purchase agreements (PPAs) for Vijaynagar and Ratnagiri plants. “We view the shelving of EV plans as a positive, as investors were previously concerned on capital allocation decisions of the company. Maintain ‘reduce’ with FV of `65 per share (from `67 per share) even as we raise the earnings per share for FY20 by 15% to factor lower fuel cost in FY20,” it said in a report.
Edelweiss Securities said JSW has raised the proportion of long-term PPA to 80.5% in FY19 from 75.0% a year ago through a 376 MW tie-up at Karcham Wangtoo plant and 86MW at the Ratnagiri plant. “There could be further upside if JSW is able to secure procurers for 290 MW under PFC tender, for which management highlighted it is in discussion with various discoms,” it said.