12 August 2017
1QFY18 Results Update | Sector: Utilities
JSW Energy
BSE SENSEX
31,214
S&P CNX
9,711
CMP: INR64
TP: INR49(-27%)
Downgrade to Sell
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Venturing into electric vehicle business
Shrinking FCF and rising risk will de-rate; Downgraded to Sell
JSW Energy’s (JSWE) 1QFY18 operating performance was in-line. Merchant power
sales were weak, fuel cost increased but hydro power generation was strong on
better availability of water. Simultaneously, JSWE announced venture into
electric vehicle space with investment of INR35-40b over the next three-years.
Although it is a very promising space, yet there is no visibility of payback in next
3-5 years. This changes the risk profile of company, which may irk existing
minorities and de-rate the stock. Further, JSWE has given ICD of INR10b to JPVL,
which is an NPA in the books of banks. The visibility of acquisition of Bina and
EUP1 of JPL too has reduced. SOTP has reduced to INR49/share on shrinking FCF
and rising risk profile of investments. Downgrading to Sell.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
JSW IN
1,640
109.9/ 1.6
83 / 54
1/-9/-30
407
25.0
Financials & Valuations (INR b)
Y/E Mar
2017E 2018E 2019E
Net Sales
826.3 870.0 891.3
1QFY18: Weak demand and rising coal import prices hurting
EBITDA
33.2
30.5
30.0
JSW Energy’s (JSWE) EBITDA declined 22% YoY to INR8.7b (in-line) due to higher
PAT
6.3
5.5
4.4
fuel cost and lower merchant sales. Other income grew 146% YoY to INR1b, led by
EPS (INR)
3.8
3.4
2.7
interest on loan/advance given to JPVL and JSPL. Finance cost declined 8% YoY to
Gr. (%)
-51.5 -12.0 -20.5
INR3.9b on lower interest rate. PAT declined 41% YoY to INR2.2b.
BV/Sh (INR)
63.2
64.2
64.5
RoE (%)
6.3
5.3
4.2
Generation was unchanged YoY at 6,400MU. Generation declined ~21% YoY at
Ratnagiri due to maintenance shutdown and lower merchant sales, but was
RoCE (%)
8.6
8.0
7.8
P/E (x)
16.7
19.0
23.9
offset by higher generation in hydro.
P/BV (x)
1.0
1.0
1.0
Fuel cost in standalone rose 32% YoY to INR3.05/kWh on higher international
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
Tax
Rate (%)
MI and Associates
Reported PAT
Adj PAT
YoY Change (%)
1Q
24,500
16.3
13,328
11,173
45.6
2,398
4,293
416
4,899
1,248
25.5
-14
3,665
3,665
32.1
coal prices. Rajwest EBITDA declined 18% YoY to INR2.3b on adjustment
pursuant to the recent tariff order, which is recurring in nature. Hydro EBITDA
grew 27% YoY to INR5b on higher generation and late payment charges.
JSWE is working on group captive opportunities for its untied capacity at
Ratnagiri, which could tie up ~125MW in the medium term.
INR million
FY18
1QE
23,669
-3.4
14,917
8,752
37.0
2,400
3,817
300
2,835
766
27.0
60
2,010
2,010
-45.2
FY17
82,634
-17.1
49,391
33,244
40.2
9,692
16,848
2,170
8,875
2,685
30.3
-106
6,295
6,295
-51.2
FY18E
86,996
5.3
56,500
30,496
35.1
9,700
15,730
2,608
7,673
2,072
27.0
66
5,536
5,536
-12.1
vs Est
(%)
-6
-9
-1
1
4
242
17
FY17
FY18
2Q
3Q
4Q
1Q
2QE
3QE
4QE
20,470 19,043 18,621 22,316 22,939 20,685 21,055
-19.1
-28.1
-30.6
-8.9
12.1
8.6
13.1
10,843 12,468 12,752 13,628 13,812 14,160 14,900
9,627 6,575 5,869 8,688 9,127 6,525 6,155
47.0
34.5
31.5
38.9
39.8
31.5
29.2
2,471 2,444 2,379 2,428 2,473 2,446 2,353
4,356 4,229 3,970 3,963 4,067 3,949 3,751
516
505
732 1,025
300
300
983
3,316
407
253 3,323 2,886
430 1,034
1,167
249
22 1,114
779
116
63
35.2
61.2
8.6
33.5
27.0
27.0
6.1
-25
-56
-11
36
60
60
-91
2,174
214
242 2,173 2,047
254 1,062
2,174
214
242 2,173 2,047
254 1,062
-42.3
-93.3
-92.1
-40.7
-5.8
18.7 338.6
8
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.
Dhruv Muchhal – Research Analyst
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549
Sanjay Jain – Research Analyst
(SanjayJain@MotilalOswal.com); +91 22 6129 1523

JSW Energy
Exhibit 1: Operating highlights
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
FY16
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
3.61
2.21
FY17
2Q
2,232
3.48
2.53
0.21
0.74
3.29
2.40
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
FY18
1Q
2,746
4.09
3.05
0.35
0.69
YoY
%
-16.3
6.3
32.4
104.0
-49.8
QoQ
%
20.0
-7.7
-4.4
-38.8
3.2
3.49
-3.3
-18.8
2.51
13.9
-8.1
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
FY16
2Q
2,038
84.0
1,430
81.0
1,504
86.0
585
72.0
5,557
3Q
1,955
81.0
1,689
96.0
1,715
85.0
609
24.0
5,968
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
FY17
2Q
3Q
1,699
1,407
82.0
65.0
533
927
31.0
53.0
1,377
1,628
86.0
85.0
2,347
682
94.0
24.0
5,956
4,644
4Q
971
47.0
1,317
77.0
1,387
82.0
342
14.0
4,017
FY18
YoY
QoQ
1Q
%
%
1,556
-21.7
60.2
71.0
1,190
-7.9
-9.6
69.0
1,445
0.8
4.2
86.0
1,944
14.2
468.4
78.0
6,400
-0.2
59.3
Source: MOSL, Company
Ratnagiri
Deemed PLF
Vijaynagar
Deemed PLF
Barmer
Deemed PLF
Hydro
Deemed PLF
Total
MU
%
MU
%
MU
%
MU
%
Exhibit 3: Sum of the parts valuations
NPV of PPAs
Merchant capacity
Vijaynagar
Ratnagiri
Karcham Wangtoo
Jaigarh Power Transco
JSW Steel
Total value
Less: Net Debt
Add: Advance to JPVL @ 80% of value
Equity value (FY20E discounted @ 14%)
No. of shares (mn)
Value per share (INR/sh)
MW
2,977
1,463
860
427
176
FY17E
FY18E
FY19E
FY20E
130,367
87,780
INR million
Remarks
DCF, 12% CoE, debt:equity 75:25
@ INR60m/MW FY20E
5,092
15,759
5,092
17,334
5,092
19,068
70,496
1,640
43
80,365
1,640
49
5,092
20,975
244,213
160,597
8,000
91,616
1,640
56
will be more valuable in 3-4years
6x FY17 EV/EBITDA
Current market price
Source: MOSL
12 August 2017
2

JSW Energy
Venturing into electric vehicle business
Shrinking FCF and risking risk profile will de-rate the stock in near term
JSWE has outlined a plan to invest INR35-40b in electric vehicles, storage and charging
infrastructure. It represents ~40% of net worth or ~15% of capital employed.
JSWE sees itself as ‘growth’ company and believes there is immense potential in
electric vehicles. It believes electric vehicles are at inflection point. The huge
investment in battery technology globally, tax advantage and government push makes
a case of electric vehicles in India by as soon as 2020.
The plan is against many odds. The “start-up’s” success would depend on if battery
cost declines, infrastructure develops and competitive position against well-
established auto players.
The acquisition of Bina and JSPL’s Tamnar power plant are moving slowly and look
uncertain. We remove them for our estimates. JSWE had to extend INR10b loan to
JPVL, a non-performing asset in the books of banks.
PAT is cut by 3%/21%/38% to INR5.5b/4.4b/5b for FY18/19/20E.
We do not ascribe any value to investment in ‘start-up’ due to lack of visibility
regarding payback. The TP is revised to INR49/sh. Downgrade to Sell.
Venturing into electric vehicles, storage and charging infrastructure
JSW Energy (JSWE), in a surprise move, announced that it will venture into electric
vehicle manufacturing, storage devices and charging infrastructure. It has outlined a
capital investment plan of INR35-40b over the next three-years, likely to be back-
ended. It targets to launch an electric vehicle in India as soon as 2020. The roll-out
would be gradual with multiple vehicle launches in the long-term. It would enter in a
technology tie-up on a royalty payment basis for the development of the vehicles.
This would limit JSWE’s upfront investment and aid to a faster roll-out. The
investment represents ~40% of net worth or ~15% of capital employed
Why: Electric vehicles provide immense ‘growth’ potential
The management is of the view that electric vehicles would soon enter an inflection
point. The cost of an electric vehicle is high relative to combustion engines due to
cost of batteries. Globally the investment in battery technologies is increasing at a
massive scale. China is constructing ~120GWh capacity while US has another
~36GW. It believes that the trend witnessed in falling cost of solar is likely to repeat
in batteries as benefit of economies of scale kick-in. On the other hand, local
government policies are also supportive. JSWE is likely to enter the >INR1-1.4m car
segment that have GST of >40% as against favorable 12% for electric vehicles.
Moreover, the ministry of power and transport is pushing for adoption of electric
vehicles with pilot projects in Nagpur and target to become 100% electric vehicle
nation by 2030. The management believes investment in charging infrastructure
would pick-up and can be leveraged through the infrastructure available for petrol
pumps. JSWE is a ‘growth’ company and lookout for attractive investment
opportunities.
Success would be against many odds
Surely it is an ambitious plan. It seems to us that JSWE wants to be the ‘start-up’ in
electric vehicles in India. Globally, there is lot of thrust on electric vehicles. Battery
cost has declined by more than 60% since 2010. But economics of electric vehicles is
12 August 2017
3

JSW Energy
still not favorable and has to do with tax breaks. Tax breaks are policy related and
subject to uncertainty (case in point of Hong Kong,
article link).
The technology
break-through and economics of scale in batteries could still surprise and make a
case for electric vehicles in India as soon as 2020. But what also concerns us is the
lack of JSWE’s domain expertise. The group is venturing from its history in B-to-B
businesses to a B-to-C business. As per our auto analyst, selling of vehicles is as
much about marketing, branding and distribution as of manufacturing. Which JSWE
in its current form lacks. JSWE will also have to counter the well-established position
of likes of Maruti, Hyundia, Tata Motors. What is to JSWE’s advantage is probably
the first-to-market, but only if the market is developing as soon as JSWE expects and
competition is behind.
Loan to a JPVL, a NPA; Acquisition are moving slowly
JSWE has given a loan of INR10b to JPVL as it had to convert the corporate
guarantee for acquisition of JPVL’s Bina power plant to a loan, as the long-stop date
of the transaction was extended from May 2017 to December 2017. JSWE is earning
market linked interest rate on the loan. While management has assured of servicing
and recoverability of the loan, JPVL is classified as a non-performing asset (NPA) by
the banks. The management also mentioned that the acquisition of Bina (500MW)
and JSPL (1,000MW) are slow moving. There is uncertainty on these acquisitions; as
a result we remove them from our estimates.
Estimates cut to factor in Bina, JSPL and investment in ‘start-up’
We incorporate the planned INR40b investment in the ‘start-up’ and remove Bina
and JSPL acquisition. We also include the loan to JPVL and interest income on it. We
also marginally cut estimates for Rajwest, in line with the performance in 1QFY18,
and tweaked estimates for Ratnagiri Maharashtra PPA as per the recent merit order
data. EBITDA is cut by 2%/11%/16% to INR30b/30b/32b for FY18/19/20E,
respectively. Interest cost is unchanged as the outflow for acquisition of Bina and
JSPL is offset by investment in the ‘start-up’ and loan to JPVL. PAT is cut by
3%/21%/38% to INR5.5b/4.4b/5b for FY18/19/20E. The FCF generation (post
interest) over FY18-20E has declined from ~INR50b (ex-plant acquisition) estimated
earlier to outflow of INR8b.
Downgrade to Sell
We do not give any value to the investment in the ‘start-up’. The market for electric
vehicles in India can surprise, but we are unsure if JSWE has the expertise to
compete with well-established auto players. The current set of minority investors
view JSWE as a power generating company, which typically has a steady stream of
cash flows and return profile. Whether to now evaluate JSWE as a power generation
company or as an auto company would create confusion and limit investor interest
in the stock.
We value the loan to JPVL at 80% of the value to factor the risk that it is a non-
performing asset. The revised target price is INR49/sh. Downgrade to Sell.
12 August 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
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
98,245
4.7
40,261
41.0
8,543
31,719
14,981
2,351
1,500
20,589
5,563
27.0
129
14,474
14,474
7.3
2016
16,268
80,773
97,041
166,607
4,341
268,002
204,963
8,443
196,520
3,206
9,369
41,763
6,358
29,063
4,327
2,015
8,079
7,566
513
33,684
249,237
2017
82,634
-15.9
33,244
40.2
9,692
23,552
16,848
2,170
0
8,875
2,690
30.3
-65
6,290
6,290
-56.5
2017
16,280
87,405
103,685
158,803
5,801
268,312
206,625
18,167
188,457
5,269
13,599
40,322
5,967
21,828
10,032
2,495
6,897
6,335
562
33,425
247,200
2018E
86,996
5.3
30,496
35.1
9,700
20,796
15,730
2,608
0
7,673
2,072
27.0
86
5,536
5,536
-12.0
2018E
16,280
88,985
105,264
155,803
6,261
267,438
212,625
27,867
184,757
5,269
13,599
32,038
5,244
14,301
9,998
2,495
5,787
5,224
562
26,251
236,325
2019E
89,125
2.4
30,004
33.7
10,140
19,864
16,359
2,613
0
6,117
1,652
27.0
86
4,400
4,400
-20.5
2019E
16,280
89,429
105,708
155,803
6,628
268,334
223,625
38,007
185,617
5,269
13,599
32,191
5,372
14,651
9,673
2,495
5,903
5,341
562
26,288
237,222
(INR Million)
2020E
96,326
8.1
32,211
33.4
11,180
21,031
16,606
2,551
0
6,977
1,884
27.0
86
5,027
5,027
14.3
2020E
16,280
90,500
106,779
169,803
7,047
283,910
249,625
49,187
200,437
5,269
13,599
33,341
5,806
15,834
9,205
2,495
6,298
5,736
562
27,043
252,797
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)
12 August 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)
2013
6.7
10.7
37.8
2.0
29.8
8.2
5.1
1.4
0.0
7.1
3.7
18.5
11.4
2014
6.9
11.8
40.1
2.0
29.0
8.6
5.0
1.5
0.0
6.1
3.4
17.7
12.8
2015
8.4
13.3
45.8
2.0
23.7
14.1
9.0
2.6
0.0
7.8
1.7
19.6
13.9
2016
7.9
13.1
59.2
2.0
25.3
8.8
5.3
1.2
0.0
6.9
2.9
15.1
12.6
2017
3.8
9.7
63.2
2.0
52.1
16.7
6.6
1.0
0.0
7.6
3.1
6.3
8.6
2018E
3.4
9.3
64.2
2.0
59.3
19.0
6.9
1.0
0.0
8.2
3.1
5.3
8.0
2019E
2.7
8.9
64.5
2.0
74.5
23.9
7.2
1.0
0.0
8.4
3.1
4.2
7.8
2020E
3.1
9.9
65.1
2.0
65.2
20.9
6.5
1.0
0.0
8.2
3.1
4.7
7.9
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
108.0
23.6
1.7
0.3
96.4
26.4
1.4
0.3
60.0
22.0
1.4
0.3
60.0
22.0
1.4
0.3
60.0
22.0
1.5
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
Cash Flow Statement
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
40,261
3,006
-4,902
-2,989
0
35,376
-349
35,027
0
-31,671
-32,020
0
2,768
-14,891
-4,102
-16,224
-12,868
17,376
4,508
2017
33,244
1,539
1,818
-2,387
0
34,214
-3,715
30,499
0
469
-3,246
0
-5,289
-16,796
-3,927
-26,012
4,957
4,327
9,284
2018E
30,496
0
-2,860
-1,611
0
26,025
-6,000
20,025
0
2,608
-3,392
0
-3,000
-15,730
-3,936
-22,666
-34
10,032
9,998
2019E
30,004
0
-362
-1,285
0
28,357
-11,000
17,357
0
2,613
-8,387
0
0
-16,359
-3,936
-20,295
-325
9,998
9,673
(INR Million)
2020E
32,211
0
-1,223
-1,465
0
29,523
-26,000
3,523
0
2,551
-23,449
0
14,000
-16,606
-3,936
-6,542
-468
9,673
9,205
12 August 2017
6

JSW Energy
NOTES
12 August 2017
7

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JSW Energy
Disclosure of Interest Statement
Analyst ownership of the stock
JSW Energy
No
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Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
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12 August 2017
8