2 May 2017
Q4FY17 Results Update | Sector: Utilities
JSW Energy
BSE SENSEX
29,921
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INR m
Free float (%)
S&P CNX
9,314
JSW IN
1,640
110.0 / 1.7
86/54
-2/-14/-25
288
25.0
CMP: INR62
TP: INR88 (+42%)
Buy
Weak demand and higher fuel cost impact performance
Merchant capacities at discount to replacement cost; Reiterating Buy
JSW Energy’s (JSWE) 4QFY17 EBITDA was down 48% YoY/11% QoQ to INR5.9b (est.
of INR6.5b) due to lower generation (demand), shutdown at Ratnagiri and higher
fuel cost. PAT was down 92% YoY/+13% QoQ to INR242m. For FY17, EBITDA
declined 20% YoY to INR33b, while PAT fell 55% YoY to INR6.3b.
Blending domestic coal provides hedge against coal prices:
Blending domestic
coal up to 50% at Ratnagiri and Vijaynagar would help if international coal
prices are upwards of USD70-75/t (subject to e-auction coal prices; Exhibit 3, 4
and 5). It would act as a hedge against rising coal prices.
PPA for 200MW at Karcham Wangtoo soon:
Of the contracted capacity of
704MW, PPA for 200MW was pending approval of capital cost by CERC (on
March 30 2017). The PPA is now expected soon (likely with Punjab).
Likelihood of extension of short-term PPA at Vijaynagar:
According to
management, the 650MW PPA with Karnataka could be extended (expires by
May 2017) as power availability from state gencos has reduced due to water
shortage and maintenance. We estimate Vijaynagar to run at 50% PLF and
realization of INR3/kWh for FY18, as we believe the extension, if any, will be for
a very short period due to addition of new generation/transmission capacities.
Merchant assets available at discount to replacement cost; Move to FY19E; Buy:
We have upgraded EBITDA by ~5% to ~INR35b and PAT by ~2x to INR2.9b for FY19E
on marginally higher merchant realization and lower interest cost. Bina and JPL
acquisitions are included in our forecast. At current stock price, JSWE’s merchant
capacities are valued at ~INR40m/MW (Exhibit 7), at a discount to replacement
cost of INR60m/MW. Balance sheet is strong at 1.4x D:E, with annual FCF (post-
interest) generation of INR11-14b on support from contracted capacities. We roll
forward to FY19E valuation at SOTP-based TP of INR88 (Exhibit 6). Reiterate
Buy.
FY17
2Q
3Q
4Q
20,470 19,043 18,621
-19.1 -28.1 -30.6
10,843 12,468 12,752
9,627 6,575 5,869
47.0
34.5
31.5
2,471 2,444 2,379
4,356 4,229 3,970
516
505
732
3,316
407
253
0
0
0
3,316
407
253
1,167
249
22
35.2
61.2
8.6
-25
-56
-11
2,174
214
242
2,174
214
242
-42.3 -93.3 -92.1
FY16
99,690
6.3
58,244
41,446
41.6
9,502
15,032
2,100
19,013
-1,500
20,513
6,051
29.5
507
13,955
12,897
-6.0
FY17
82,634
-17.1
49,391
33,244
40.2
9,692
16,848
2,170
8,875
0
8,875
2,685
30.3
-106
6,295
6,295
-51.2
FY17
4QE
19,696
-26.5
13,167
6,529
33.1
2,487
4,030
559
571
0
571
-90
-15.7
370
290
290
-90.5
vs Est
(%)
-5
-3
-10
-4
-2
31
-56
-56
Financials & Valuations (INR b)
2017 2018E 2019E
Y/E Mar
Net Sales
826.3 909.9 1,084.2
EBITDA
33.2
32.0
34.9
PAT
6.3
3.4
2.9
EPS (INR)
3.9
2.1
1.8
Gr. (%)
-49.1 -45.2 -16.9
BV/Sh (INR)
63.7
63.5
63.0
RoE (%)
6.7
3.3
2.8
RoCE (%)
8.7
7.7
7.7
P/E (x)
17.4
31.7
38.1
P/BV (x)
1.1
1.1
1.1
Estimate change
TP change
Rating change
Quarterly Performance (Consolidated)
Y/E March
Net Sales
YoY Change (%)
Total Expenditure
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
Extra-Ord expense
PBT
Tax
Rate (%)
MI and Associates
Reported PAT
Adj PAT
YoY Change (%)
1Q
21,070
-17.6
12,897
8,173
38.8
1,984
2,640
691
4,239
0
4,239
1,155
27.2
310
2,775
2,775
-15.2
FY16
2Q
3Q
4Q
25,314 26,491 26,814
12.4
11.3
22.5
15,332 14,579 15,436
9,983 11,913 11,378
39.4
45.0
42.4
2,240 2,650 2,627
3,511 4,491 4,389
898
264
247
5,129 5,035 4,610
-1,500
0
0
6,629 5,035 4,610
1,537 1,816 1,543
23.2
36.1
33.5
172
12
12
4,920 3,206 3,054
3,767 3,206 3,054
16.4 -19.0
-5.9
1Q
24,500
16.3
13,328
11,173
45.6
2,398
4,293
416
4,899
0
4,899
1,248
25.5
-14
3,665
3,665
32.1
-17
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549

JSW Energy
Operating highlights
Generation was down 32% YoY/13% QoQ to 4.01BU.
Rpt. realization was higher 1% YoY/8% QoQ to INR4.3/kWh.
Unit fuel cost (ex-hydro) was up 27% YoY/9% QoQ to INR2.74/kWh.
Exhibit 1: Operating highlights
FY16
1Q
Standalone
Units
Realization
Fuel cost
Other cost
EBITDA
Consolidated
Rpt. Realization
Fuel (ex-hydro)
MU
INR/kWh
INR/kWh
INR/kWh
INR/kWh
INR/kWh
INR/kWh
2,979
4.19
2.52
0.21
1.46
4.18
2.17
2Q
3,468
4.06
2.45
0.22
1.39
3.99
2.15
3Q
3,644
4.28
2.34
0.17
1.77
4.09
2.05
4Q
3,812
4.17
2.26
0.18
1.73
4.24
2.16
1Q
3,279
3.84
2.31
0.17
1.37
3.84
2.21
2Q
2,232
3.48
2.53
0.21
0.74
3.29
2.40
FY17
3Q
2,334
3.75
2.87
0.27
0.60
3.98
2.51
4Q
2,288
4.43
3.19
0.57
0.66
4.30
2.74
YoY
%
-40.0
6.1
41.5
212.8
-61.6
QoQ
%
-2.0
18.1
11.1
107.4
10.6
1.4
8.0
26.7
8.9
Source: MOSL, Company
Exhibit 2: Generation and PLFs
1Q
1,574
66.0
1,405
81.0
1,501
80.0
0
0.0
4,480
2Q
2,038
84.0
1,430
81.0
1,504
86.0
585
72.0
5,557
FY16
3Q
1,955
81.0
1,689
96.0
1,715
85.0
609
24.0
5,968
FY17
4Q
2,078
92.0
1,734
99.0
1,676
86.0
406
14.0
5,894
1Q
1,987
86.0
1,292
74.0
1,434
85.0
1,702
69.0
6,415
2Q
1,699
82.0
533
31.0
1,377
86.0
2,347
94.0
5,956
3Q
1,407
65.0
927
53.0
1,628
85.0
682
24.0
4,644
4Q
971
47.0
1,317
77.0
1,387
82.0
342
14.0
4,017
YoY
%
-53.3
-24.0
-17.2
-15.8
QoQ
%
-31.0
42.1
-14.8
-49.9
Ratnagiri
Deemed PLF
Vijaynagar
Deemed PLF
Barmer
Deemed PLF
Hydro
Deemed PLF
Total
MU
%
MU
%
MU
%
MU
%
-31.8
-13.5
Source: MOSL, Company
Conference call highlights
Demand and UDAY:
The impact of UDAY is getting visible. The ability of discoms
to pay has improved. As financial health improves their off-take is also expected
to increase. Expect more medium term PPA as demand improved, led by UDAY.
Uttar Pradesh has announced aggressive plans to ensure 24x7 power supply in
the state in the next 1-2 years which should drive strong increase in demand.
Blending of coal:
JSWE has received permission to blend domestic coal up to
50%. The formal letter is however still pending.
Interest cost:
Borrowing cost is expected to decline to 9.5% by FY18 on
replacing costlier bank loans with bonds and refinancing. It was 10.17% in FY19.
Bina acquisition:
The long-stop date for acquisition of Bina is likely to be
extended by a couple of months. The delay is due to JP Power going under SDR.
UP cancels long-term PPA:
UP has cancelled by bids for the 2.8GW long-term
PPA. It is likely to come out with a large medium term PPA contract.
Karnataka state genco generation has reduced:
on water shortage at Bellary
power plant and likely maintenance shutdown at one of the state’s hydro power
plant.
2 May 2017
2

JSW Energy
Exhibit 3: Generation cost at Richards Bay USD70/t
FoB Richards Bay
Freight
Import Duty
Insurance
CIF
USDINR
CIF
Port handling
Coal cess
Inland transportation
Landed cost
GCV
Generation cost (ex-bus)
USD/t
USD/t
%
%
USD/t
INR/t
INR/t
INR/t
INR/t
INR/t
Kcal/kg
INR/kWh
Vijaynagar
70.0
8.0
2.5
1.0
80.7
65.0
5,249
300
400
800
6,749
6,000
2.64
Ratnagiri
70.0
8.0
2.5
1.0
80.7
65.0
5,249
300
400
0
5,949
6,000
2.33
Source: MOSL
Exhibit 4: Vijaynagar generation cost based on domestic e-auction coal
Pit-head coal cost
E-auction coal cost
Royalty + DMF
Coal cess
Sizing and transport
Ex-mine coal cost
Transport cost
Rail loading/unloading
Rail km
rate
Sea freight
Landed cost of coal
GCV of coal
SHR
Specific cons.
Generation cost
Generation cost (ex-bus)
INR/t
INR/t
INR/t
INR/t
INR/t
INR/t
INR/t
INR/t
x
INR/km
INR/t
INR/t
Kcal
x
kg/kCal
INR/kWh
INR/kWh
WCL
760
910
138
400
150
1,598
1,725
110
850
1.9
0
3,323
3,100
2,350
0.76
2.52
2.74
SECL
MCL
760
760
910
910
138
138
400
400
150
150
1,598
1,598
2,580
2,110
110
110
1,300
600
1.9
2.0
0
800
4,178
3,708
3,100
3,100
2,350
2,350
0.76
0.76
3.17
2.81
3.44
3.06
Source: MOSL, Company
SECL
MCL
760
760
910
910
138
138
400
400
150
150
1,598
1,598
2,580
1,310
110
110
1,300
200
1.9
2.0
0
800
4,178
2,908
3,100
3,100
2,350
2,350
0.76
0.76
3.17
2.20
3.44
2.40
Source: MOSL, Company
Exhibit 5: Ratnagiri generation cost based on domestic e-auction coal
Pit-head coal cost
E-auction coal cost
Royalty + DMF
Coal cess
Sizing and transport
Ex-mine coal cost
Transport cost
Rail loading/unloading
km
rate
Sea freight
Landed cost of coal
GCV of coal
SHR
Specific cons.
Generation cost
Generation cost (ex-bus)
INR/t
INR/t
INR/t
INR/t
INR/t
INR/t
INR/t
INR/t
x
INR/km
INR/t
INR/t
Kcal
x
kg/kCal
INR/kWh
INR/kWh
WCL
760
910
138
400
150
1,598
1,725
110
850
1.9
0
3,323
3,100
2,350
0.76
2.52
2.74
2 May 2017
3

JSW Energy
Exhibit 6: SOTP valuation
NPV of PPAs
Merchant capacity
JSW Power Trading
Jaigarh Power Transco
Barmer Mining
JSW Steel
Total value
Less: Net Debt
Equity value (FY20E discounted @ 14%)
No. of shares (mn)
Value per share (INR/sh)
MW
3,327
2,613
FY17E
FY18E
FY19E
FY20E
162,706
156,780
765
5,919
94
18,644
344,908
181,055
163,853
1,628
101
Remarks
DCF, 12% CoE, debt:equity 75:25
@ INR60m/MW FY20E
1x invested equity
6x FY16 EV/EBITDA
1x FY16 networth
Current market price
700
5,919
94
14,008
721
5,919
94
15,408
743
5,919
94
16,949
126,079
1,628
77
143,730
1,628
88
Source: MOSL, Company
Exhibit 7: Merchant capacities available at discount to replacement cost
INR b
Market capitalization
Net debt FY20
Enterprise value
Less:
Power trading
Jaigarh Transco
Barmer Mining
JSW Steel
Implied EV of generation assets
Less: NPV of long-term PPAs
Implied EV of merchant assets
109
181
290
1
6
0
19
265
163
102
Capacity
MW
INR m
MW
5,940
3,327
2,613
45
49
39
Source: MOSL, Company
2 May 2017
4

JSW Energy
Financials and Valuations
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
Income Statement
2012
61,188
42.2
14,478
23.7
5,033
9,444
7,172
1,466
-1,613
2,125
419
19.7
6
1,701
1,701
-79.8
2012
16,401
40,600
57,001
121,112
1,292
179,904
124,268
14,818
109,450
36,702
2,871
43,671
7,658
10,640
8,786
16,587
13,084
11,336
1,748
30,588
179,904
2013
89,343
46.0
27,932
31.3
6,615
21,317
9,628
2,134
-1,966
11,857
2,733
23.1
-29
9,037
9,037
431.4
2013
16,401
45,637
62,038
120,726
1,524
184,740
160,288
21,335
138,953
9,772
2,714
52,062
4,415
18,487
10,825
18,334
19,041
14,837
4,204
33,021
184,740
2014
87,054
-2.6
32,514
37.3
8,100
24,415
12,059
2,022
-3,777
10,600
2,836
26.8
51
7,547
7,547
-16.5
2014
16,401
49,311
65,712
114,643
1,933
182,791
166,247
30,006
136,241
6,146
2,535
47,416
4,158
11,976
12,016
19,266
9,653
5,449
4,204
37,763
182,791
2015
93,802
7.8
36,234
38.6
7,898
28,337
11,375
2,301
-342
18,921
5,150
27.2
86
13,495
13,495
78.8
2015
16,401
58,780
75,180
105,127
2,930
183,784
169,858
38,047
131,810
4,536
2,327
55,430
5,483
11,723
17,376
20,849
10,416
6,062
4,353
45,014
183,784
2016
99,689
6.3
41,446
41.6
9,502
31,944
15,032
2,100
1,500
20,513
6,051
29.5
133
13,955
13,955
3.4
2016
16,401
68,958
85,358
173,365
4,383
263,657
262,307
47,304
215,003
7,265
1,932
56,344
6,494
28,381
4,701
16,767
17,717
13,322
4,394
38,627
263,657
2017
82,634
-17.1
33,243
40.2
9,692
23,552
16,848
2,170
0
8,874
2,690
30.3
-65
6,290
6,290
-54.9
2017
16,280
87,405
103,685
159,202
5,801
268,711
245,453
56,996
188,457
5,269
13,599
72,115
5,967
21,828
10,032
34,288
17,178
16,616
562
54,937
268,711
2018E
90,995
10.1
31,976
35.1
10,920
21,056
17,346
1,387
0
5,097
1,376
27.0
86
3,445
3,445
-45.2
2018E
16,280
87,133
103,413
171,202
6,107
280,831
273,453
67,916
205,537
5,269
13,599
66,293
5,485
14,958
11,563
34,288
16,317
15,754
562
49,977
280,831
(INR Million)
2019E
108,421
19.2
34,873
32.2
12,560
22,313
19,604
1,590
0
4,299
1,161
27.0
86
2,863
2,863
-16.9
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
2019E
16,280
86,279
102,558
202,202
6,365
311,320
314,453
80,476
233,977
5,269
13,599
69,297
6,535
17,823
10,652
34,288
17,271
16,709
562
52,026
311,320
2 May 2017
5

JSW Energy
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2012
2.0
5.1
34.8
0.5
24.8
2013
6.7
10.7
37.8
2.0
29.8
2014
6.9
11.8
40.1
2.0
29.0
2015
8.4
13.3
45.8
2.0
23.7
14.1
9.0
2.6
0.0
7.8
1.7
5.8
6.1
18.5
11.4
17.7
12.8
19.6
13.9
2016
7.6
13.4
52.0
2.0
26.3
9.2
5.2
1.3
0.0
6.8
2.9
15.5
12.5
2017
3.9
9.8
63.7
2.0
51.8
17.4
6.8
1.1
0.0
7.8
3.0
6.7
8.7
2018E
2.1
8.8
63.5
2.0
94.5
31.7
7.6
1.1
0.0
8.4
3.0
3.3
7.7
2019E
1.8
9.5
63.0
2.0
113.7
38.1
7.1
1.1
0.0
8.6
3.0
2.8
7.7
0.3
63.5
45.7
2.0
0.5
75.5
18.0
1.8
0.5
50.2
17.4
1.5
0.5
45.6
21.3
1.2
0.4
103.9
23.8
2.0
0.3
96.4
26.4
1.4
0.3
60.0
22.0
1.5
0.3
60.0
22.0
1.9
Cash Flow Statement
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2012
14,478
312
6,323
-826
0
20,287
-18,833
1,454
0
632
-18,200
0
3,571
-7,196
-1,906
-5,532
-3,445
12,231
8,786
2013
27,932
-1,185
-6,874
-2,627
0
17,246
-9,783
7,464
0
1,420
-8,363
0
3,819
-9,710
-953
-6,844
2,040
8,786
10,825
2014
32,514
-2,341
-4,894
-2,588
0
22,691
-4,940
17,751
0
2,030
-2,910
0
-2,701
-12,052
-3,838
-18,591
1,191
10,825
12,016
2015
36,234
861
1,322
-4,489
0
33,929
-6,772
27,156
0
1,475
-5,297
0
-8,124
-11,328
-3,820
-23,272
5,359
12,016
17,376
2016
41,446
2,080
-4,855
-2,998
0
35,673
-693
34,981
0
-31,674
-32,366
0
3,003
-15,036
-3,948
-15,982
-12,675
17,376
4,701
2017
33,243
-10,940
5,429
-2,690
0
25,042
-1,000
24,042
0
734
-266
0
0
-16,848
-3,907
-20,755
4,021
4,701
8,722
2018E
31,976
0
6,491
-1,070
0
37,397
-28,000
9,397
0
1,387
-26,613
0
12,000
-17,346
-3,907
-9,253
1,531
10,032
11,563
(INR Million)
2019E
34,873
0
-2,960
-903
0
31,010
-41,000
-9,990
0
1,590
-39,410
0
31,000
-19,604
-3,907
7,489
-911
11,563
10,652
2 May 2017
6

JSW Energy
Corporate profile
JSW Energy, a Sajjan Jindal company has a power
generation project portfolio of 3.1GW is
operational. It has recently approved investment on
240MW hydro power project. It has acquired
1.4GW of hydro power project and is exploring
further inorganic growth opportunity. 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.
Company description
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Mar-17
Promoter
DII
FII
Others
75.0
10.7
8.0
6.3
Dec-16
75.0
11.7
8.3
5.0
Mar-16
75.0
11.8
9.0
4.2
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Life Insurance Corporation Of India
Steel Traders Limited
Blackrock Global Funds Asian Dragon Fund
Indus Capital Group Limited
Life Insurance Corporation Of India
% Holding
4.9
3.0
1.7
1.4
4.9
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Sajjan Jindal
Sanjay Sagar
Pramod Menon
Designation
Chairman & Managing Director
Joint Managing Director & CEO
Director (Finance)
Exhibit 5: Directors
Name
Chandan Bhattacharya
Shailaja Chandra
Uday Chitale
Rakesh Nath
Name
N K Jain
Sheila Sangwan
Tanvi Shete
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Lodha & Co
S R Bhargave & Co
S Srinivasan & Co
Type
Statutory
Cost Auditor
Secretarial Audit
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
MOSL
forecast
3.9
2.1
1.8
Consensus
forecast
5.1
5.9
6.1
Variation (%)
-23.4
-64.3
-70.5
Source: Bloomberg
Source: Capitaline
2 May 2017
7

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JSW Energy
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8