Jsw Energy (JSWE) reported strong Q1FY23 results with 135% y-o-y profit growth. Incremental Ebitda from merchant power sales stood at Rs 2.7 bn vs Rs 0.2 bn in Q1FY22. Renewable Energy (RE) capacity ramp-up is on track. We initiated with a Buy on JSWE on 18 July, 2022, based on higher RE share in capacity ahead and cash flow benefits from pockets of higher merchant prices. Buy.
Acceleration in RE capacity addition: Management on its call highlighted that it is on track to meet its 20-GW capacity target by FY30E and is hopeful of advancing its FY25E 10-GW target vs on-ground capacity of 4.8 GW. Our estimates factor in 6.8 GW by FY25E, of which 3.6 GW is RE. Higher cash flows from the merchant power sales are helping faster capacity addition. SECI-X, the 450 MW power plant supposed to be commissioned at end of Q2FY23, is now expected to be commissioned by July’23. Recently, the company commissioned a captive solar power plant of 225MW, having a 25-year PPA.
B/S intact even during downturn: JSWE was possibly the only major private sector power company that did not bid aggressively in the tariff-based competitive bidding period of 2008-12. The company has kept its B/S intact, with d:e well below 3x and reasonable return ratios. The company owns 70.03 mn shares of JSW Steel, which we have not valued separately. If one excludes the value of this from the company’s net worth, the reported ROE will be 11.5-12% vs the 8-10% reported ROE. We believe management will maintain the return discipline ahead in bidding, which is the underlying reason for our optimism of growth at healthy return ratios ahead.
We raise our FY23E-25E EPS by 1-5%, factoring in Q1. We expect EPS to see a CAGR of 14% over FY22-25E, on the back of projects being commissioned. We value the stock at 14x EV/Ebitda Sept’24E to arrive at PT of Rs 315 (vs Rs 310). Key risks include project delays and aggressive bidding.