Nomura rates JSW Energy as ‘Reduce’, says stock price performance likely to remain under pressure

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Published: January 28, 2017 2:18:35 AM

At Rs 6.6 bn (-43% y-o-y), JSW Energy’s (JSWE’s) Ebitda was marginally above our forecast, but 11% below consensus. At Rs 214 million (-93% y-o-y) the company posted a marginal profit vs. our estimate for a marginal loss and consensus forecast of a PAT of Rs 1.2 bn (i.e., an 81% miss).

At Rs 19 billion (-27% y-o-y), revenues were in line with our forecast (3% below consensus) whereas imported coal cost at Rs 2.87/kWh (+14% q-o-q) was 4% below our forecast. (Reuters)At Rs 19 billion (-27% y-o-y), revenues were in line with our forecast (3% below consensus) whereas imported coal cost at Rs 2.87/kWh (+14% q-o-q) was 4% below our forecast. (Reuters)

At Rs 6.6 bn (-43% y-o-y), JSW Energy’s (JSWE’s) Ebitda was marginally above our forecast, but 11% below consensus. At Rs 214 million (-93% y-o-y) the company posted a marginal profit vs. our estimate for a marginal loss and consensus forecast of a PAT of Rs 1.2 bn (i.e., an 81% miss). At Rs 19 billion (-27% y-o-y), revenues were in line with our forecast (3% below consensus) whereas imported coal cost at Rs 2.87/kWh (+14% q-o-q) was 4% below our forecast. We believe this can be attributed to the availability and utilisation of low cost coal inventory. The balance sheet is still healthy, even as JSWE undertakes debt refinancing. Net debt stood at R141 bn (vs.

Rs 137 bn as of Sep 2016), net debt/ equity was 1.38x (vs. 1.34x as of Sep-2016) and cost of debt was marginally lower q-o-q at 10.26% (vs. 10.37% as of Sep-2016).

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What’s next – maintain Reduce; reviewing our TP

In our view, meaningful 9MFY17 Ebitda/PAT comprises 82%/ 106% of our FY17F Ebitda/PAT for JSWE; however, we believe that profitability in Q4 remains a challenge. In the backdrop of the earnings miss, management expecting margins to remain under pressure in the short-term and the resignation of the well-regarded Director (Finance) & CFO, we believe stock price performance will remain under pressure, at least in the near-term. At the current market price, the stock trades at FY18F P/B of 1.0x (BVPS of R57.9) and P/E of 14.4x (EPS of R4.1). We maintain our Reduce rating.

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Key metrics and updates from release & earnings call

Fuel cost: Coal consumed = 0.99 mt (0.96 mt in Q2FY17). Management indicated that the full brunt of the sharp hike in seaborne thermal coal prices is yet to reflect in financials as company benefited from low cost inventory.

Outlook on realisation: No guidance on realisation, but management expects tariffs to remain muted in the near term. Offtake visibility for 860 MW Vijayanagar project: Supply under the 650 MW PPA with the Karnataka Discoms up to May 31 2017 at a tariff of R4.18/kWh has commenced.

Operations of Unit-1 at Ratnagiri: Management expects Unit-1 (300 MW) of the Ratnagiri project to resume operations in end-February/early-March.

Jaigad Power Transco: JPTL posted 57% q-o-q drop in PAT.

Change of CFO: Pramod Menon, JSWE’s CFO has quit.

Acquisition of Bina project: Management stated that the deal with Jaiprakash Power Ventures to acquire the Bina project is not off the table as they have not been communicated anything to this effect by the seller or the lenders.

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