3 February 2015
3QFY15 Results Update | Sector:
Utilities
JSW Energy
BSE SENSEX
29,000
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Free float (%)
S&P CNX
8,757
JSW IN
1,640.1
126/42
18/52/140
25
n
CMP: INR113
n
TP: INR105 (-7%)
Neutral
EBIDTA above estimate, PAT in-line; Upgrade estimate, target price
3QFY15 PAT in-line:
JSW Energy reported consolidated net profit of INR3.8b, in-
line with our estimate. However, EBIDTA for the quarter stood 14% higher than
estimate (INR9.7b, vs est of INR8.6b) aided by higher ST prices, marginally lower
fuel cost vs estimate and savings in operating cost. Higher interest cost, tax rate
and lower other income however negated the gain.
Fuel cost taper off QoQ, RB index remain soft:
RB Index (Richard Bay’s Index)
remained soft and 3QFY15 average stood at USD66/ton, lower than USD70/ton
QoQ. Over the past two months, the average stood at USD62/ton. JSWEL
benefited owing to benign coal prices and fuel cost stood at INR2.64/unit, down
from INR2.91/unit YoY and INR2.72/unit QoQ. This was also INR0.90/unit lower
than our estimate. We already factor current RB index as average for FY16/17E.
Key takeaways from concall:
a) ST realization guidance range maintained at
INR4.25-4.50/unit, b) takeover of hydro assets from JPVL to be over by 1QFY16E,
c) Buyer’s credit exposure at USD175m, d) Barmer mine fully geared for 7mtpa
production and e) JSWEL’s board has sought shareholder approval to raise
INR50b to funds inorganic growth/expansion plans, and further approval to invest
upto INR75b in equity of any body corporate.
Valuations and view:
We upgrade our FY15/16E earnings for JSWEL by 6/13%,
respectively to assume benefit of low coal cost, higher ST price and opex cost
savings. We expect JSWEL to report net profit of INR15b in FY15E (up 45% YoY),
and INR14b in FY16E (down 7% YoY). Stock trades at PER of 12.9x and P/B of 1.9x
(RoE of 16%) on FY17E basis. We upgrade our TP to INR105/sh, re-iterate
Neutral.
M.Cap. (INR b) / (USD b) 185.3/3.0
Avg Val (INRm)/Vol ‘000 245/3,067
Financials & Valuation (INR Billion)
Y/E MAR
Sales
EBITDA
NP
Adj.EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015E 2016E 2017E
95.8
37.6
15.0
9.1
44.9
46.7
21.1
19.8
12.4
2.4
101.5
45.1
13.9
8.5
-7.1
52.8
17.1
18.4
13.3
2.1
96.4
42.1
14.3
8.7
2.9
59.0
15.6
14.6
12.9
1.9
n
Estimate change
TP change
Rating change
6/13%
21%
n
Nalin Bhatt
(NalinBhatt@MotilalOswal.com); +91 22 3982 5429
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

JSW Energy
3QFY15 consolidated PAT in-line with estimate
n
n
n
n
n
n
JSW Energy reported consolidated sales of INR23.8b (up 11% YoY), EBIDTA of
INR9.7b (up 21% YoY) and reported PAT of INR3.8b (up 72% YoY). Reported
EBIDTA was 14% higher than our estimate of INR8.6b.
While total sales volumes at 5.4BUs were lower than our estimate of 5.5BUs,
higher ST prices, and lower operating cost aided EBIDTA. Operating cost stood at
INR1.4b, vs estimate of INR1.6b, which is in sync with 1HFY15 average of
INR1.6b.
Standalone revenues for JSWEL stood at INR16.6b, up 7% YoY. For the quarter,
the average realization looked up at INR4.28/unit, vs INR4.17/unit QoQ and
compares with our estimate of INR4.16/unit. Average realization for the
consolidated entity stood at INR4.37/unit, vs INR4.23/unit QoQ, led by change in
volume mix and higher ST prices.
ST volumes for the quarter stood at 2.5BUs, up from 2.3BU YoY and 1.9BUs
QoQ. Supply under Long term PPA to JSW Steel stood at 121MUs, vs 653MUs
QoQ, which led to higher ST sales from Vijaynagar project.
Fuel cost for the standalone entity stood lower at INR2.64/unit, vs INR2.91/unit
YoY and INR2.72/unit QoQ. This was also lower than our estimate of
INR2.73/unit. Fuel cost for JSWEL moderated owing to lower global coal price.
For Vijaynagar project, the reported PLF remained robust at 100%. Ratnagiri
project continued to witness improved PLFs at 84% (vs 68% YoY). For Raj West
however, the deemed PLF stood at 77%, vs 87% YoY.
Exhibit 2: ST Sales mix for standalone entity (MUs)
Vijaynagar
Ratnagiri
Exhibit 1: Mix in favor of LT volume for JSWEL (MUs)
Long Term
Short Term
Exhibit 3: Gross margin remain stable
Avg. Realization (INR/Unit)
Fuel Cost (INR/Unit)
Gross margins (INR/Unit)
2.8
1.6 1.8 1.6 1.8
0.6
1.3
0.7 1.0 1.0
1.7 1.5 1.5 1.9 1.6 1.8 1.5 1.5 1.6
Source: Company, MOSL
3 February 2015
2

JSW Energy
RB index continue to remain muted
n
n
The global coal prices have again started to trend down, after a marginal pick-up
in 3QFY14. This coupled with INR appreciation and robust ST price realization
bode well for JSW energy. We understand that 800-900MW out of its 1,460MW
of open capacity is tied-up under medium term contract up to June 2015.
RB Index (global coal) has been trending down and 3QFY15 average RB index
stood at USD66/ton, vs USD70/ton QoQ. In the month of January/February
2015, the RB index has slide to USD62/ton.
Exhibit 4: Softening global coal price bode well for JSWEL
175
150
125
100
75
50
Avg RB Index (USD/ton)
YoY
QoQ
2.0
1.4
0.7
0.1
(0.6)
Source: Bloomberg, MOSL
Enabling resolution to raise fund for expansion
n
n
n
n
JSW energy’s board has sought approval from shareholders to raise upto INR50b
additional equity to fund its organic and/or inorganic growth plans. JSWEL had
entered into definitive agreement to acquire 1.4GW of hydro power assets from
Jaiprakash Power Ventures (JPVL) at an EV of INR97b.
Management highlighted that it remains open to inorganic growth
opportunities. The fund raising may thus help it strengthen its financial position
for the same, as it is working only on Kutehr project.
In addition, management has also sought approval to acquire/invest in equity of
any company by way of subscription/purchase for an amount upto INR75b, over
and above present permissible limit. Presently, it can invest upto 60% of paid-up
capital, free reserve and securities premium or 100% of free reserve and
securities premium, whichever is more.
JSWEL is favorably placed with DER of 1.23x as at September 2014.
Key takeaways from concall
n
n
n
n
n
ST realisation guidance range of INR4.25-4.50/unit maintained
Kapurdi mine is geared to produce upto 7mtpa
Enabling work for Kutehr Hydro power project (240MW) is commenced and
management expects EPC award to be placed by April 2015.
Transaction to acquire Baspa and Karcham Wangtoo projects from JPVL is
expected to be over by 1QFY16E.
Buyer’s credit exposure at USD175m.
3 February 2015
3

JSW Energy
Valuations and view
n
n
n
Capacity mix to improve in favour of LT PPA with HEP acquisition:
JSWEL’s business model in medium term is combination of merchant power
sales and spot coal purchases. Of the 3.1GW operational capacity, ~1.5GW is on
ST sales, while fuel purchases will be on spot basis. JSWEL’s acquisition of hydro
power projects (HEP) from JPVL would increase its total capacity to 4.5GW,
translating into thermal:hydro mix of ~70:30. Also, given that both the projects
are tied-up under LT PPA (~70% for KW), the overall mix of the capacity will
tilted in favour of PPA at 65%, while 35% is under merchant basis.
Benign coal price favourable, ST price premium a risk:
JSWEL continues to maintain higher merchant realization especially in the
southern region driving the standalone profits. This has been further sweetened
with decline in global coal prices. As Southern grid connectivity improves and LT
power supply is available to Southern States, ST prices are expected to decline.
Low gearing, operating cash flow provides inorganic growth opportunity
JSWEL has lowest DER amongst private sector players. Higher operating
cashflows and no sizable commitment on project equity front enables an
opportunity to growth inorganically. Besides its recent acquisition, it continues
to scout for more growth option.
We upgrade our FY15/16E earnings for JSWEL by 6/13%, respecitlvely to assume
benefit of low coal cost, higher ST price and opex cost savings. We expect JSWEL to
report net profit of INR15b in FY15E (up 45% YoY), and INR14b in FY16E (down 7%
YoY). Stock trades at PER of 13x and P/B of 2x (RoE of 16%) on FY17E basis. We
upgrade our TP to INR105/sh, re-iterate Neutral.
Key possible triggers
- Continued correction/benign coal prices,
- Higher ST realization and
- Inorganic growth opportunity
- Finalization of tariff for Raj West project
Key risks
-
Decline in ST price / Southern grid premium,
- INR depreciation,
- Regulatory risk on existing/newly acquired assets
Exhibit 5: PER Band
40
32
24
16
8
0
15.0
15.7
P/E (x)
5 Yrs Avg(x)
Exhibit 6: PB Band
4.0
3.0
2.0
1.0
0.0
1.9
2.4
P/B (x)
5 Yrs Avg(x)
ROE (%)
25.0
20.0
15.0
10.0
5.0
0.0
Source: MOSL
3 February 2015
4

JSW Energy
Operational metrics (Quarterly)
Particulars
Capacity (MW)
Generation (MUs)
Sales (MUs)
- Vijaynagar
- Ratnagiri
- Raj West
Sales Mix (MUs)
- Long Term
- Merchant
ST as a % of total
INR/unit
- Avg Realn
- Fuel Cost
- Gross margin
1QFY13 2QFY13
2,600
2,600
5,115
4,731
1,745
2,215
771
5,052
4,241
1,394
2,181
666
3QFY13
2,600
5,157
4,880
1,899
2,132
849
4QFY13
3,140
5,066
4,841
1,888
1,928
1,025
1QFY14
3,140
5,510
4,979
1,640
1,984
1,355
2QFY14
3,140
4,710
3,778
785
1,768
1,225
3QFY14
3,140
4,361
4,057
1,763
1,622
672
4QFY14
3,140
3,867
3,670
1,826
1,398
446
1QFY15
3,140
5,413
5,605
1,702
2,216
1,687
2QFY15
3,140
5,662
5,237
1,611
1,968
1,658
3QFY15 4QFY15E
3,140
3,140
5,802
5,367
1,770
2,025
1,572
6,134
5,657
1,775
2,063
1,819
2,233
2,498
52.8
2,036
2,205
52.0
2,264
2,616
53.6
2,271
2,570
53.1
2,704
2,275
45.7
2,268
1,510
40.0
1,749
2,308
56.9
1,378
2,292
62.5
2,911
2,694
48.1
3,290
1,947
37.2
2,870
2,497
46.5
3,023
2,634
46.6
4.56
2.64
1.92
4.81
2.57
2.24
4.77
2.30
2.47
4.67
2.28
2.39
4.88
2.08
2.80
5.26
2.73
2.53
5.22
2.63
2.59
5.50
2.74
2.76
4.50
2.35
2.15
4.23
2.34
1.89
4.37
2.30
2.07
4.25
2.08
2.17
3 February 2015
5

JSW Energy
Story in charts
Exhibit 7: Generation growth muted over FY15-17E
Karnatake Phase -I
Ratnagiri
3
1
1
2
0
3
2
FY10
5
2
FY11
6
4
2
FY12
5
2
FY13
4
8
7
4
2
FY14
8
5
2
8
5
2
8
5
2
Karnatake Phase -II
RajWest Phase-I
7
7
7
100
50
33
0
26
54
44
56
71 70
Exhibit 8: RB index trending down (USD/ton)
200
177
150
130
FY15E FY16E FY17E
Exhibit 9: ST price, fuel cost key to PAT growth (INR b)
Exhibit 10: Return ratios to remain muted (%)
23.9
18.7
14.8
14.4
ROE (%)
17.8
RoCE (%)
21.1
16.2
19.8
5.8
6.4
FY11
FY12
FY13
FY14 FY15E FY16E FY17E
14.6
17.1
18.4
14.6
15.6
2.8
7.5
8.4
3.3
10.6
10.3
15.0
13.9
14.3
6.5
FY09
9.0
9.7
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
FY10
Exhibit 11: Gearing comfortable (x)
1.68
1.52
1.47
1.51
1.47
1.30
1.21
0.95
Exhibit 12: Valuations at LT average
40
32
24
16
8
0
15.0
15.7
P/E (x)
5 Yrs Avg(x)
FY10
FY11
FY12
FY13
FY14 FY15E FY16E FY17E
Source: MOSL
3 February 2015
6

JSW Energy
Corporate profile: JSW Energy
Company description
JSW Energy, a Sajjan Jindal company has a power
generation project portfolio of 3.1GW is
operational. IT is working on 240MW hydro power
project. The company is an early entrant in Power
Trading business and has presence in Power
equipment manufacturing and has established JV
with Toshiba for super critical steam turbines and
generator.
Exhibit 13: Sensex rebased
Exhibit 14: Shareholding pattern (%)
Dec-14
Promoter
DII
FII
Others
75.0
6.5
6.6
11.9
Sep-14
75.0
6.6
5.6
12.9
Dec-13
75.0
6.4
3.9
14.8
Exhibit 15: Top holders
Holder Name
LIC of India
Steel Traders Ltd
Indus Capital Group Ltd
% Holding
4.9
3.6
3.0
Note: FII Includes depository receipts
Exhibit 16: Top management
Name
Sajjan Jindal
Sanjay Sagar
Designation
Chairman & Managing Director
Joint Managing Director & CEO
Exhibit 17: Directors
Name
Sajjan Jindal
Sanjay Sagar
Chandan Bhattacharya*
N K Jain
Name
P Abraham*
Pramod Menon
Sheila Sangwan*
Shailaja Chandra*
*Independent
Exhibit 18: Auditors
Name
Lodha & Co
S R Bhargave & Co
Type
Statutory
Cost Auditor
Exhibit 19: MOSL forecast v/s consensus
EPS
(INR)
FY15
FY16
FY17
MOSL
forecast
9.1
8.5
8.7
Consensus
forecast
7.8
7.9
8.1
Variation
(%)
17.0
8.0
7.6
3 February 2015
7

JSW Energy
Financials and valuations
Income Statement
Y/E March
Net Sales
Change (%)
Operating Expenses
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
Other Income
PBT
Tax
Rate (%)
PAT before Min. Int.
Minority Interest
Reported PAT
Change (%)
Adjusted PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves and Surplus
(INR Million)
2010
23,551
28.3
11,416
12,135
51.5
1,361
2,837
742
0
8,679
1,224
14.1
7,455
0
7,455
169.4
7,481
170.4
2011
42,944
82.3
27,302
15,642
36.4
2,668
4,325
1,332
-446
9,980
1,563
15.7
8,418
0
8,418
12.9
8,418
12.5
2012
61,188
42.5
46,711
14,478
23.7
5,033
7,172
1,466
-1,613
3,738
419
11.2
3,319
6
3,313
-60.6
3,313
-60.6
2013
89,343
46.0
61,411
27,932
31.3
6,615
9,628
2,134
-1,966
13,823
2,733
19.8
11,090
-29
11,119
235.6
10,592
219.7
2014
87,054
-2.6
54,540
32,514
37.3
8,100
12,059
2,022
-3,777
10,600
2,836
26.8
7,764
51
7,713
-30.6
10,334
-2.4
2015E
95,815
10.1
58,247
37,568
39.2
8,005
11,734
2,392
0
20,220
5,246
25.9
14,974
75
14,899
93.2
14,979
44.9
2016E
101,481
5.9
56,428
45,053
44.4
10,246
20,415
3,409
0
17,801
3,880
21.8
13,921
80
13,841
-7.1
13,916
-7.1
2017E
96,373
-5.0
54,302
42,071
43.7
10,052
17,306
3,685
0
18,398
4,057
22.0
14,342
100
14,242
2.9
14,317
2.9
(INR Million)
2010
16,401
31,401
47,802
152
78,701
1,161
2011
16,401
40,364
56,765
724
84,709
1,562
6
323
86,601
8,512
9,704
11,771
1,973
31,959
176,048
134,903
2,389
11,552
148,844
2,453
5,348
7,645
9,779
1,509
471
27,204
176,048
2012
16,401
40,600
57,001
500
87,172
1,292
14
286
88,764
5,710
25,289
14,262
1,462
46,723
192,988
146,446
2,871
13,068
162,876
2,100
7,658
10,640
6,686
1,816
1,212
30,113
192,988
2013
16,401
45,637
62,038
452
88,527
1,524
19
306
90,375
6,468
25,678
14,872
3,898
50,916
203,781
149,021
2,714
13,992
166,404
6,836
4,415
18,487
3,990
2,240
1,410
37,377
203,781
91,005
2014
Share Holder Funds
Minority
LT Borrowings
Deffered Tax Liabilities
Other LT Liabilities
LT Provisions
Non Current Liabilities
ST Borrowings
Trade Payables
Other Current Liabilities
ST Provisions
79,862
Current Liabilities
Total Equity and liabilities
Fixed Assets
Non Current Investments
LT Loan and Advances
Non Current Assets
Current Investments
Inventories
Trade Receivables
Cash and Bank Balance
ST Loan and Advances
Other Current Assets
17,524
1,482
19,006
146,823
115,979
14,344
3,852
134,176
3,714
2,714
6,048
171
12,647
146,823
Current Assets
Total Assets
E: MOSL Estimates
16,401
49,311
65,712
503
89,323
1,933
19
309
91,584
2,077
16,405
12,269
3,895
34,645
192,444
142,493
2,535
13,821
159,841
6,342
4,158
11,976
5,675
2,048
2,405
32,603
192,444
85,726
2015E
16,401
60,077
76,478
578
87,168
1,933
19
309
89,429
1,869
4,905
12,500
3,895
23,169
189,654
124,757
3,012
12,000
139,769
6,342
3,668
19,208
16,214
2,048
2,405
49,885
189,654
72,823
2016E
16,401
70,079
86,480
658
160,526
1,933
19
309
162,787
1,682
5,045
0
3,895
10,621
260,546
190,508
3,012
12,000
205,520
6,342
3,763
23,833
16,636
2,048
2,405
55,026
260,546
2017E
16,401
80,369
96,770
758
139,531
1,933
19
309
141,792
1,514
5,189
0
3,895
10,597
249,917
180,457
3,012
12,000
195,469
6,342
3,861
15,842
23,951
2,048
2,405
54,449
249,917
3 February 2015
8

JSW Energy
Financials and valuations
Ratios
Y/E March
Basic (INR)
Adjusted EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Leverage Ratio
Debt/Equity (x)
2010
4.6
-9.9
5.4
29.1
0.5
10.0
24.8
21.0
20.2
10.4
3.9
0.4
23.9
9.0
1.5
2011
5.1
12.5
6.5
34.6
1.0
19.5
22.0
17.4
17.0
6.2
3.3
0.9
14.8
9.7
1.5
2012
2.0
-60.6
4.1
34.8
0.5
24.7
55.9
27.5
18.6
4.4
3.3
0.4
5.8
6.4
1.5
2013
6.5
219.7
9.5
37.8
2.0
31.0
17.5
11.8
9.6
3.0
3.0
1.8
17.8
14.4
1.5
2014
2015E
2016E
2017E
8.7
2.9
14.9
59.0
2.2
25.0
6.3
-2.4
9.5
40.1
2.0
31.7
17.9
11.8
8.1
3.0
2.8
1.8
16.2
14.6
1.3
9.1
44.9
14.0
46.7
2.3
25.0
12.4
8.1
6.7
2.6
2.4
2.0
21.1
19.8
1.0
8.5
-7.1
14.7
52.8
2.1
25.0
13.3
7.7
7.2
3.2
2.1
1.9
17.1
18.4
1.7
12.9
7.6
7.0
3.1
1.9
1.9
15.6
14.6
1.2
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Net Worth
(Inc)/Dec in Pref.Capital
(Inc)/Dec in Debt
(Inc)/Dec in Deffered Tax Liab.
Less : Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2010
8,705
1,361
2,837
-1,224
-5,246
6,433
31,803
12,640
44,442
26,376
0
19,430
347
-2,837
-842
42,474
4,297
1,751
6,048
2011
9,980
2,668
4,325
-1,563
-8,067
7,344
28,540
-9,503
19,037
2,898
0
17,675
527
-4,325
-1,906
14,868
3,730
6,048
9,779
2012
3,738
5,033
7,172
-419
6,784
22,309
10,014
130
10,143
-2,124
0
-3,494
1,698
-7,172
-3,560
-606
-15,258
-3,093
9,779
6,686
2013
13,706
6,615
9,628
-2,733
-2,876
24,341
7,952
4,579
12,531
-162
0
2,112
185
-9,628
-3,838
-3,175
-14,506
-2,696
6,686
3,990
2014
2015E
2016E
(INR Million)
2017E
18,473
10,052
17,306
-4,057
6,704
48,478
0
0
0
0
0
-10,331
100
-17,306
-4,027
-9,599
-41,162
7,316
10,434
8,100
12,059
-2,836
-21,211
6,546
-11,253
-6,538
-17,790
0
0
1,054
51
-12,059
-3,838
-7,860
-22,652
1,685
3,990
5,674
20,300
8,005
11,734
-5,246
-312
34,482
0
0
0
0
0
-9,405
75
-11,734
-4,213
1,335
-23,942
10,540
5,675
16,214
17,876
10,246
20,415
-3,880
-12,786
31,872
0
0
0
0
0
-8,936
80
-20,415
-3,914
1,735
-31,450
422
16,214
16,636
16,636
23,951
3 February 2015
9

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