JSW Energy - Capex cycle to commence - ICICI Securities

JSW Energy's (JSWEL) Q2FY21 consolidated revenue/EBITDA/PAT came in at Rs19.4bn/Rs9.2bn/Rs3.5bn, lower 8.5%/1.2%/0.2% YoY. On generation front, Barmer and hydro units performed well as long-term (LT) offtake improved, but Vijayanagar and Ratnagiri declined due to lower merchant sales. Earnings were impacted by: 1) Lower merchant volumes and prices, partially offset by lower fuel cost, 2) lower other income, and 3) lower interest cost. JSWEL net debt reduced further by Rs8.2bn QoQ, and its net D/E at 0.6x signals end of deleveraging and start of capex cycle as it targets 10GW capacity in the medium term, with incremental addition mainly from non-fossil fuel sources (targeting mid teen IRRs). 810MW wind-solar hybrid LoA gives it a good start on this front (high option value if it materialises). Maintain ADD with an unchanged target price of Rs66.

- Higher offtake from LT customers supports numbers: Consolidated generation declined 0.7% YoY to 6,653MUs, wherein although ST sales declined significantly (by 85% to 110MU), LT offtake increased (by 10% to 6,543MU). Sales were lower YoY at Vijaynagar and Ratnagiri by 20/3%/19.5%, but higher at Barmer by 34.2% YoY due to higher offtake from discoms. Hydro generation was flat YoY. Revenue was impacted since few existing LT customers (at Ratnagiri) migrated to job work/tolling arrangement for power procurement in order to take benefit of GST ITC, no impact on JSWEL's EBITDA. Interest cost was down 23.9% YoY due to reduction in net LT debt by Rs8.2bn QoQ to Rs76.7bn, while other income also declined. The company does not expect merchant volumes and prices to improve significantly in FY21.

- Details of LoA: JSWEL's subsidiary JSW Solar participated in SECI's Tranche-IX blended wind power projects tender in which it received LoA to set up blended wind capacity totalling 810MW (max 20% solar blending). The total project cost is estimated at Rs47-48bn, which will be financed at 75/25 D/E to be set up in Tamil Nadu (land secured). At Rs3/kWh tariff, we believe, IRR will range at 14-15% depending on the location and PLF. Signing of PSA between SECI and discoms is awaited, after which commissioning will take another 24 months. Hence, FY24 may be the first full year of operations. PLF for wind/solar is estimated at 33-35%/26-27%.

- Deleveraging cycle nears completion; capex cycle begins with 10GW medium-term capacity target: With net debt to equity reaching 0.6x through substantial deleveraging and cash >Rs8bn (ex-other liquid assets), JSWEL expects to complete its deleveraging process in FY21 and start its next leg of capex targeting primarily RE/hybrid asset addition. The company has maintained its 10GW target in the medium term. Its current capacity is 4,559MW, while addition of 1,750MW with total capex of ~Rs100bn is under progress (IBU - 700MW, Rs25bn, 75:25 D/E; SECI IX wind/solar hybrid - 810MW, Rs48bn, 70:30 D/E; Kutehr HEP - 240MW; Rs27bn, 67:33 D/E). It will also participate in SECI's upcoming 5GW hybrid tender. To be future-ready, JSWEL has identified a portfolio of land to set up and commission RE projects quickly. IBU's resolution plan continues to remain pending at NCLT and also stuck due to intra-creditor litigation issues.

- Valuation: Maintain ADD with an unchanged target price of Rs66. Both RE project as well as IBU have high option values (Rs9/sh and Rs15/sh, respectively) and we will incorporate them in our estimates when their addition becomes certain.

Shares of JSW Energy Ltd was last trading in BSE at Rs.58.35 as compared to the previous close of Rs. 58.6. The total number of shares traded during the day was 105331 in over 610 trades.

The stock hit an intraday high of Rs. 59.65 and intraday low of 58.05. The net turnover during the day was Rs. 6170052.

Source : Equity Bulls

Keywords