BSE SENSEX
29,910
S&P CNX
9,238
JSW Energy
CMP: INR64
TP: INR73 (+14%)
CERC approves capital cost of Karcham Wangtoo
At ~INR65b, capital cost is lower than our estimate of ~INR70b
5 April 2017
Update
| Sector:
Utilities
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
Financials Snapshot (INR b)
Y/E Mar
2016
JSW IN
1,640
86/54
-1/-20/-24
109.9
1.6
243.0
25.0
CERC approves Karcham Wangtoo project cost at ~INR65b
In its order dated March 30, 2017, CERC has approved JSW Energy’s Karcham
Wangtoo hydropower plant’s project cost at ~INR65b for FY17. The plant’s capacity
was maintained at 1,000MW, with 10% overload against the company’s claim of
1,091MW capacity and 10% overload (1,200MW). The CERC has disallowed the
capex pertaining to the capacity that was disallowed (91MW). Resultantly, the
approved capital cost is lower than our estimate of ~INR70b.
2017E
2018E
Net Sales
EBITDA
PAT
EPS (INR)
Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
99.7
41.4
14.0
7.6
-10.0
52.0
15.5
12.5
9.2
1.3
86.2
34.3
6.7
4.1
-46.0
53.9
7.7
9.4
14.5
1.1
91.5
34.5
5.3
3.3
-20.5
54.8
6.0
9.0
18.2
1.1
Likelihood of 200MW Punjab PPA improves
Karcham Wangtoo has PPAs for 704MW with Haryana (200MW), UP (200MW),
Punjab (200MW) and Rajasthan (104MW). However, only 504MW are effective
(under provisional tariff), as Punjab has not been sourcing power, pending the
approval of capital cost (according to the management). The likelihood of the
200MW Punjab PPA has, therefore, improved. Punjab was a party to the tariff
hearing of Karcham Wangtoo, which indicates its interest. In any case, where
Punjab does not honor the PPA, we believe at an approved tariff of less than
~INR3.5/kWh, the project is attractive for other DISCOMs (Unlike coal-based
projects that are exposed to coal price increase, hydro projects have a declining
tariff structure. Hydropower also aids in RE integration). We were already building
increase in Karcham Wangtoo’s PPA capacity from 504MW to 704MW from FY18.
Shareholding pattern (%)
Dec-16 Sep-16 Dec-15
As On
Promoter
75.0
75.0
75.0
DII
11.7
11.2
12.0
FII
8.3
9.4
8.9
Others
5.0
4.5
4.1
FII Includes depository receipts
Stock Performance (1-year)
JSW Energy
Sensex - Rebased
90
80
70
60
50
Cutting estimates on lower capital cost; maintain Buy
We have cut our PAT estimates by INR1.1b/0.7b to INR3.7/1.2b for FY18/19 on the
lower than estimated capital cost at Karcham Wangtoo. The lower capital cost does
not only impact the regulated equity (and thus RoE), but also the proportionate
recovery of depreciation, interest cost and O&M (which is set at 2% of capital cost).
Our SOTP-based target price is cut to INR73. At the current stock price, the market
is valuing JSW’s generation portfolio at FY20E EV of INR290b (including Bina’s
500MW and Jindal Power’s 1,000MW). The NPV of the capacity under PPAs as at
the end of FY20 is INR163b. The implied value of the remaining capacity of 2.6GW
that is exposed to the merchant market is INR105b or INR40m/MW (Exhibit 1). We
expect oversupply to get corrected by FY20, because the capacity addition has
already declined sharply, while retiring of inefficient capacities would expedite the
schedule. Once the market balances, efficient merchant capacities would become
valuable. Therefore, we believe it is fair to assume a valuation of INR60m/MW
(equal to replacement cost) in FY20E.
Maintain Buy.
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
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.