JSW Energy Rating: Sell- RE biz may get re-rated on rise in auction rate

Green and grey businesses reorganised; TP revised to Rs 156; ‘Sell’ maintained

We estimate JSWEL’s FY24E/26e Ebitda at Rs 43.8/50.8 bn, of which contribution from green business will be >62%, as commissioning of 2,218MW solar and wind projects is expected to complete by FY24, and Kutehr HEP is expected to be commissioned by FY25.
We estimate JSWEL’s FY24E/26e Ebitda at Rs 43.8/50.8 bn, of which contribution from green business will be >62%, as commissioning of 2,218MW solar and wind projects is expected to complete by FY24, and Kutehr HEP is expected to be commissioned by FY25.

JSW Energy’s (JSWEL’s) Board has approved the reorganisation of its green and grey businesses. Its RE business (operational: 1,391MW hydro & 10MW solar; under construction: 240MW hydro & 2,218MW of solar + wind) will be housed under a new wholly-owned subsidiary – JSW Neo Energy. The thermal business (3,158MW) will continue to be part of JSWEL. Other green ventures – energy storage, green hydrogen, green ammonia – will be undertaken through JSWNEL. We estimate JSWEL’s FY24E/26e Ebitda at Rs 43.8/50.8 bn, of which contribution from green business will be >62%, as commissioning of 2,218MW solar and wind projects is expected to complete by FY24, and Kutehr HEP is expected to be commissioned by FY25.

Though there is immense potential for RE capacity addition, we would be more comfortable assigning a higher multiple to RE platform once the overall annual bidding picks up from 10GW to 25-30GW. On FY24E basis, assuming 8x EV/Ebitda for grey business, CMP implies 13x EV/Ebitda multiple for the green business, slightly lower vs global peers. We have assigned 10x FY24E EV/Ebitda to RE capacity, in line with NTPC and Tata Power. Maintain Sell.

Uptick in RE auctions may uprate JSWEL’s RE business: We increase our TP to Rs 156 (earlier: Rs 150). Valuing JSWEL’s coal vertical at 8x, at CMP the RE vertical is being valued at 13x FY24E EV/Ebitda, which ranges at 13-16x for global and 10-11x for the listed Indian peer set. Even though the current valuation assigns the best for grey business and a high platform multiple for RE vs domestic peers, we believe that once the RE auctions pick up, growth in the green vertical will become more visible for the firm, resulting in uprating in valuations on a par with global peers.

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