1 August 2020
1QFY21 Results Update | Sector: Utilities
JSW Energy
Estimate change
TP change
Rating change
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CMP: INR46
TP: INR65 (+41%)
Buy
Lower merchant sales impact performance
Healthy cash flow generation; debt reduction continues
JSW Energy (JSWE)’s results reflected the impact of lower merchant sales
volumes due to lower power demand and merchant prices. At a
consolidated level, EBITDA was down 8% YoY to INR7.5b.
Debt reduction continues, with net debt (incl. acceptances) declining
~INR1.6b during the quarter. Interest cost also decreased by 11% YoY.
Furthermore, FCF generation would continue to be strong given ~80% of
JSWE’s capacity is under long-term PPAs.
Maintain Buy, with TP of
JSW IN
INR65/sh.
1,640
S/A performance impacted by lower merchant sales
JSWE’s 1QFY21 EBITDA decreased 8% YoY to INR7.5b (our est.: INR7.3b) on
account of lower short-term sales. Short-term sales volumes declined 83%
YoY to 123MU. Interest cost fell 11% YoY to INR2.5b given the debt
reduction. Other income was up 58% YoY to INR0.8b, led by write-backs of
INR0.3b. PAT was down 13% YoY to INR2.1b.
Hydro generation was down 13% YoY and EBITDA 2% YoY to INR3.3b.
EBITDA at Barmer was up 10% YoY to INR2.8b. Across plants, lower other
expenses aided EBITDA.
Net debt (incl. acceptances) reduced to ~INR96.9b (v/s INR98.6b in FY20).
The co.’s receivables have reduced 20% from FY20-end.
Management commentary: Receivables have decreased
The receivables situation is improving, with 20% decline seen from
March’20-end levels. This has been led by improved collections for
DISCOMs at the end of the quarter. The co. expects further improvement as
money from the REC+PFC scheme flows through.
O&M expenses have reduced on account of improving plant parameters,
the deferment of some expenses (such as CSR), and partly, on lower
volumes.
The co. expects its merchant capacity to fully tie up under LT PPA over the
next two to three years.
Healthy cash flow generation, with large tied-up capacity; Maintain Buy
The Kamalanga acquisition has been cancelled, and there has been no
progress on the Ind Barath acquisition. Furthermore, while the company is
focusing on renewables, this would take some time to ramp up. We see
some prudence in JSWE wanting to hold on to cash, but if growth
opportunities do not emerge or the dividend payout is not increased,
concerns may arise over capital allocation. However, with the recent fall in
stock prices, JSWE remains attractive (FY22: 0.6x P/BV; 8.7x P/E).
We estimate 18% 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 INR65/sh.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
75.5 / 1
80 / 35
-10/-20/-33
76
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 (%)
9.0
0.6
5.9
2.2
26.0
11.0
0.6
5.8
5.4
32.9
8.7
0.6
5.1
5.4
34.1
0.8
7.1
7.8
19.7
0.7
5.8
7.2
59.7
0.5
7.1
7.8
47.4
82.7
29.6
8.3
35.7
5.1
20.0
71.0
76.4
27.3
6.9
35.7
4.2
-17.7
72.6
85.0
28.3
8.7
33.3
5.3
26.1
75.4
Shareholding pattern (%)
As On
Jun-20 Mar-20
Promoter
74.9
74.9
DII
9.4
8.9
FII
6.8
7.5
Others
9.0
8.7
FII Includes depository receipts
Jun-19
74.9
8.4
6.9
9.8
;
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com); +91 22 6129 1572
13 February 2020
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.