Analyst Corner: Downgrade JSW Energy to ‘sell’ with TP of Rs 130

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Updated: June 30, 2021 8:27 AM

At the consolidated level, EBITDA was up 10% YoY to `6.3b. The co. has set its sights on improving its Renewables footprint, with plansn to reach a total of 10GW of installed capacity by FY25 (v/s 4.5GW currently).

JSWJSWS will invest Rs 7billion in tranches into JSW paints over FY22-25E.

Scaling up in Renewables, but valuations well capture upcoming plans: JSW Energy (JSWE)’s results reflect the benefit of back-down charges for an erstwhile power purchase agreement (PPA) with Telangana. At the consolidated level, EBITDA was up 10% YoY to Rs 6.3b. The co. has set its sights on improving its Renewables footprint, with plansn to reach a total of 10GW of installed capacity by FY25 (v/s 4.5GW currently). Wins of 2.2GW (including those for group captives) provide visibility to these plans. However, even as we build in the successful commissioning of these projects over the next 2–3 years, the current price factors this in well. Furthermore, risks to timely execution persist given the lack of PPAs for these projects. We raise our SOTP-based target price to Rs 130/sh (earlier: Rs 85/sh) capturing a) the benefit from 2.2GW of upcoming renewable projects and b) the increase in the value of JSWE’s stake in JSW Steel. However, with the sharp run-up in the stock over the past three months, the possible benefits are captured more than adequately. Accordingly, we downgrade the stock to ‘Sell’.

Operating profit benefits from income related to back-down charges: JSWE’s 4QFY21 EBITDA was up 10% YoY to Rs 6.3b (v/s our estimate ofn Rs 5.3b). The higher-than-expected number was attributable to Rs 1b income related to back-down charges for an erstwhile Telangana PPA. Short-term sales volumes were down 55% YoY to 330MUs. Interest costs increased 34% QoQ / 4% YoY to Rs 2.6b (est. Rs 2.0b) on account of some provisioning for liabilities related to its hydro plant. PAT was down 2% YoY to Rs 1.1b (our est.: Rs 1.0b). Hydro generation was down 11% YoY, with EBITDA for the segment downn 27% YoY to Rs 0.7b. EBITDA at Barmer was flat YoY at Rs 2.4b. Net debt (including acceptances and short-term advances) reduced ton Rs 65.5b (v/s Rs 98.1b at end-FY20). Receivables declined significantly to IRs 13b (v/s Rs 21b at end-FY20). FY21 adjusted PAT was down 5% YoY on the back of lower merchantn volumes, offset by lower interest costs on debt reduction.

Management commentary highlights: JSWE plans to reach 10GW by FY25, led by 0.8GW of SECI IX, 0.45GW ofn SECI X, and 0.96GW of group-captive projects. It targets another 3GW of projects from upcoming auctions.

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