Motilal Oswal has reiterated its Buy rating on JSW Energy with a target price of Rs 705 per share. This implies nearly 60% upside from current levels. According to the brokerage house, JSW Energy (JSWE) considering acquisition of KSK Mahanadi Power Company supports the company’s growth and share price.
3 reasons why Motilal Oswal has Buy on JSW Energy
JSW Energy targets acquiring KMPCL at Rs 16,000 crore and the Committee of Creditors has approved the company’s resolution. It has received the Letter of Intent (LoI) from the Resolution Professional (RP) for KMPCL and also the approval from NCLT or National Company LawTribunal. It is awaiting a nod from the Competition Commission of India (CCI). The acquisition is expected to receive final approval by Q1FY26.
Motilal Oswal on JSW Energy: Lenders eying total recovery
KMPCL is a 3.6 GW coal-fired power plant in Chhattisgarh. This includes 1.8 GW of operational capacity and an additional 1.8 GW in brownfield expansion potential. One of the key reasons Motilal Oswal sees it as a move supporting JSW Energy is the fact that the company has also committed to providing lenders with a 26% equity stake in the company. According to Motilal Oswal, this project was facing significant financial distress and with this move “lenders are expected to recover Rs 26,485 crore, representing about 90% of the total claims.” This also included JSW’s offer along with the Rs 10,500 crore in cash and undisputed fund receivables. “However, factoring in the 26% equity stake provided to lenders, the total recovery is expected to exceed 100%, as noted by a lender involved in the process,” added the brokerage house.
Motilal Oswal on JSW Energy: Capacity expansion
KMPCL has a 3,600MW thermal power plant in Chhattisgarh. As per reports, three 600 MW units currently operational. This takes the total to 1,800 MW. Motilal Oswal listed out that the “company has PPAs with UPPCL (1,000 MW net), TANGEDCO (500 MW net), and CSPTCL (5% of net power export). The remaining 90 MW capacity is sold through short-term arrangements to IEX as well as other DISCOMs.” Not only does the company have long-term arrangement for procuring coal but also “has an under-construction expansion of 1,800 MW (comprising three 600 MW units), with one unit 40% complete and the balance of plants in place for the remaining 1,200 MW,” added Motilal Oswal.
Motilal Oswal on JSW Energy: Valuations outlook
Motilal Oswal estimated that the NPV for JSW Energy “will be Rs 16/share without brownfield expansion.” The 3.6 GW coal-fired power plant in Chhattisgarh comprises 1.8 GW of currently operational capacity and an additional 1.8 GW of brownfield expansion potential. “If we assume that 1.8 GW of operational capacity remains functional until FY50 and the additional 1.8 GW in brownfield expansion potential remains untapped, the estimated NPV for JSW Energy’s 74% stake in KMPCL will be Rs 16/share,” they explained.
JSW Energy will get 74% stake in KMPCL, factoring in the brownfield expansion. The Return on Equity for KMPCL “is projected at 6%/1% in FY27/FY28, while the RoCE is estimated at 2%/0.5%. The decline in these metrics in FY28 is attributed to the 1.8 GW brownfield expansion, which is leading to an increase in debt,” added Motilal Oswal. However, they expect that “both RoE and RoCE may improve to 15% and 8%, respectively, by FY32 as revenue generation from the additional 1.8 GW capacity commences from FY29 onwards.”
Motilal Oswal on JSW Energy: Key risks
However they have listed out some risks to their assumptions for Motilal Oswal. These include
Additional 1.8GW capacity to commence operations by FY29
Power Purchase Agreement (PPA) with TANGEDCO is set to expire in FY29; “we assume renewal at Rs 5.4/kwh with another off-taker,” added Motilal Oswal.
Plant has some contingent liabilities amounting to Rs 402 crore, “we need clarity from the management on whether JSW Energy would be liable in the event of an adverse outcome on these,” explained Motilal Oswal.
The JSW Energy share price is up over 3% intra-day. In fact the stock is trending higher for the past 5 days with nearly 3% gains. However, YTD, the stock is down almost 27%.