20 May 2020
4QFY20 Results Update | Sector: Utilities
JSW Energy
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
JSW IN
1,640
66.8 / 0.9
80 / 35
-4/-19/-19
56
Healthy growth driven by better standalone perf
CMP: INR41
TP: INR64 (+57%)
Buy
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
EBITDA
Adj. PAT
EBITDA Margin (%)
Cons. Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div. Yield (%)
FCF Yield (%)
8.0
0.6
5.6
2.5
29.4
9.5
0.6
5.5
6.1
36.6
7.8
0.5
4.8
6.1
38.1
0.8
7.1
7.8
39.3
0.7
6.0
7.2
46.5
0.6
7.1
7.7
38.1
82.7
29.6
8.3
35.7
5.1
20.0
71.0
77.6
27.3
7.0
35.2
4.3
-15.5
72.7
86.1
27.9
8.6
32.4
5.2
22.1
75.4
Shareholding pattern (%)
As On
Mar-20 Dec-19
Promoter
37.2
36.2
DII
27.8
26.7
FII
18.6
21.0
Others
16.3
16.1
FII Includes depository receipts
Mar-19
33.0
24.9
26.6
15.5
Kamalanga acquisition on hold; Sticking with cash in uncertain times
JSW Energy (JSWE)’s results reflected an improved performance in the S/A
business YoY, aided by lower interest costs on account of debt reduction. At
a consol level, EBITDA rose 21% in 4QFY20.
The acquisition of Kamalanga has been put on hold given the uncertainty
surrounding recovery in power demand. While we see prudence in JSWE
wanting to hold on to cash in the near term, if growth opportunities do not
emerge or dividend payout is not increased, concerns may arise over capital
allocation. Although, the recent fall in stock price implies the stock remains
attractive.
Maintain Buy
Healthy growth in S/A aided by debt reduction
JSWE 4QFY20 EBITDA increased 21% YoY to INR5.8b (our est.: INR5.6b) on
account of higher short-term sales and lower base of the previous year for
S/A (due to the timing effect in coal prices and tariff, in our view). Short-
term sales volume rose 30% YoY to 736MU. Interest cost declined 10% YoY
to INR2.5b given the debt reduction. PBT came in at INR0.9b (v/s INR0.1b in
4QFY19). For FY20, EBITDA/Adj. PAT was up 4%/20% YoY at INR29.6b/8.3b
respectively. FY20 PAT was aided by lower interest costs (INR1.4b decline).
Hydro generation was up 8% YoY, but EBITDA remained flat YoY due to the
impact of new CERC norms. EBITDA at Barmer was up 3% YoY to INR2.4b.
Reported PAT for 4QFY20 stood at INR1.1b (4QFY19: INR0.04b), supported
by lower taxes and interest costs, and was higher than our est. of INR0.2b
Net debt (incl. acceptances) reduced to INR98.5b (v/s INR113.8b in FY19).
Receivables, though, have stretched to 93 days (v/s 57 days in FY19).
Management commentary: Acquisition on hold
Given the uncertain situation due to lockdown, JSWE has put the acquisition
of the Kamalanga project on hold. As per mgmt., there is low visibility on
whether the transaction would happen.
JSWE is re-evaluating its plans for expansion in the Thermal Generation
space. The company noted it may focus more on additions within
Renewables instead.
The co. is focused on improving collections during this lockdown period.
JSWE noted its receivables have fallen ~15% from March levels.
Healthy cash flow generation, with large tied-up capacity; Maintain Buy
The Kamalanga acquisition has been put on hold given the uncertainty
around recovery in power demand. Furthermore, there has been no
progress on the Ind Barath acquisition. While we see prudence in JSWE
wanting to hold on to cash, if growth opportunities do not emerge or
dividend payout is not increased, concerns may arise over capital allocation.
However, with the recent fall in stock prices, JSWE remains attractive (FY21:
0.6x P/BV; 9.5x P/E).
We estimate 16% decline in PAT for FY21, building in lower merchant
volumes/realizations. However, strong FCF generation would continue,
aided by tied-up capacities. ~80% of JSWE’s 4.4GW capacity is under long-
term PPAs, which generate strong free cash flows. Furthermore, these tied-
up PPAs contribute ~95% to the company’s EBITDA.
Maintain Buy, with TP
of INR64/sh.
;
Aniket Mittal – Research Analyst (Aniket.Mittal@MotilalOswal.com); +91 22 6129 1572
13 February 2020
1
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