3 November 2020
2QFY21 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
96.3 / 1.3
80 / 35
1/12/-17
106
CMP: INR59
TP: INR73 (+25%)
Buy
Performance impacted by lower merchant sales
Cash flow generation healthy; Debt reduction continues
JSW Energy’s (JSWE) 2QFY21 results reflect the impact of lower merchant
sales volumes on the back of drop in power demand and merchant prices.
However, this was partly offset by operational efficiency measures. At
consolidated level, EBITDA was down 1% YoY to INR9.2b.
Net debt (excl. acceptances) continued reducing (by ~INR8.2b during the
quarter). Interest cost has also decreased 24% YoY. Further, FCF generation
is expected to be robust as ~80% of JSWE’s capacity is under long-term
PPAs.
Maintain Buy with TP of INR73/share.
S/A performance impacted by lower merchant sales
2QFY21 EBITDA was down 1% YoY to INR9.2b (v/s est. INR8.9b) on lower
merchant volumes, partly offset by operational efficiencies. Short-term
sales volumes were down 85% YoY to 110MUs. Interest cost fell 14%/24%
QoQ/YoY to INR2.1b (v/s est. INR2.4b) due to debt reduction and lower
borrowing costs. Reported PAT was flat YoY at INR3.5b (v/s est. INR3.4b).
Hydro generation was flat YoY while EBITDA was up 4% YoY at INR5.1b.
EBITDA at Barmer was down 9% YoY at INR2.5b.
Net debt (excl. acceptances) reduced to INR76.7b (v/s INR89.5b at end-
FY20). Receivables are elevated at INR21.8b but are 3% lower on YoY basis.
Management commentary highlights – Receivables have decreased
For the SECI 810 MW project, the company expects the PSA to be signed by
end-FY21. The project would be completed in 24 months post the PSA
signing and would be set up in Tamil Nadu (connectivity approvals have
been received). Solar capacity will be ~15-20% of the capacity mix.
The company plans to achieve ~10GW capacity over the next five years with
1-1.5GW capacity addition every year. Subsequently, JSWE expects the
share of renewables to increase from 35% to 65-70% in its capacity mix.
Healthy cash flow generation, with large tied-up capacity; Maintain Buy
JSWE has taken its first big step toward Renewables with the LOA for SECI’s
810MW blended project. However, with PSA yet to be signed, we do not
bake in the same in our numbers. We expect equity IRRs to be in the range
of 13-14% for the project, leading to possible marginal increase in our
valuation (~INR2-3/share), if successful.
~80% of JSWE’s 4.4GW capacity is under long-term PPAs, which generate
strong free cash flows. These tied-up PPAs contribute ~95% to the
company’s EBITDA. Further, interest cost savings and operational
efficiencies have helped to partly offset lower merchant volumes. We raise
our FY21/FY22E estimates by 12%/7% on account of these measures.
Maintain Buy and raise our TP to INR73/share
(earlier INR64/share),
broadly led by higher value of its stake in JSW Steel.
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 (%)
11.5
0.8
6.6
1.7
20.4
12.5
0.8
6.5
4.3
26.1
10.4
0.8
5.7
4.3
27.0
0.8
7.1
7.8
19.7
0.7
6.5
7.2
53.3
0.5
7.5
7.9
44.3
82.7
29.6
8.3
35.7
5.1
20.0
71.0
76.1
27.6
7.7
36.3
4.7
-7.9
73.1
84.7
28.7
9.2
33.8
5.6
20.3
76.2
Shareholding pattern (%)
As On
Sep-20 Jun-20
Promoter
74.9
74.9
DII
8.3
9.4
FII
5.9
6.8
Others
11.0
9.0
FII Includes depository receipts
Sep-19
74.9
9.0
6.7
9.5
;
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com)
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.