JSW Energy - Strong Numbers on Higher Generation - Karvy

The revenues of JSW Energy (JSWEL) surged 44% YoY to Rs. 20.8 bn in Q4FY12 - above our expectation of Rs. 19 bn - primarily due to higher generation (53% YoY) with complete CoD of Ratnagiri 1,200MW. Its EBITDA grew 35% YoY (695% QoQ) to Rs. 5.8 bn in Q4FY12. The fuel cost stood at Rs. 2.95 per unit in Q4FY12 (vs. Rs. 3.1 per unit in Q4FY11). The company's net profit increased 12% YoY to Rs. 2.3 bn (vs. Rs. 820 mn loss in Q3FY12) in Q4FY12 - owing to higher interest and depreciation costs. However, the Company faced a margin pressure in FY12 on account of higher fuel costs given that its dependence on spot market and change in law in Indonesia on coal export.

Generation: Net generation increased sharply by 53% YoY to 4,618 MU in Q4FY12, driven by commissioning of 600MW unit at Ratnagiri and stabilization of Raj West plant. Vijayanagar units clocked an impressive PLF of 102% (vs. 99% in FY11) while the PLFs for Ratnagiri & Barmer were 85% and 80%, respectively in Q4FY12 (vs. 82% and 64.2% in Q4FY11).

Realization: Average realization was Rs. 4.4 per kwh in Q4FY12 (down 6% YoY & down 0.2% QoQ). JSW Energy sold 59% of total generation on merchant basis.

Strong Operating Performance

- JSWEL generated 46BUs units (up 53% YoY & up 16% QoQ) in Q4FY12.

- Higher generation is led by commissioning of Ratnagiri (600 MW) and Raj West and better PLF's of the plants. Karnataka plant operated at PLF of 102% (vs. 85% QOQ & 99% YoY), Ratnagiri operated at PLF of 87% (vs. 85% YoY & 83% QoQ). Raj West plant operated at 82% (vs. 64 YoY & 74% QoQ. In Jan'12, Raj west commissioned Unit‐III & IV, and as on date JSWEL had operating installed capacity of 2.6GW.

- Sales volumes stood at 4,618MUs in Q4FY12 (vs. 3,961MUs QoQ & 3,013MUs YoY) of which LT sales was 1,749MUs. ST trading comprised of 59% of total volumes in Q4FY12.

As on date JSWEL had operating installed capacity of 2.6GW. Post getting open access approval from MSEDCL, JSWEL has commenced supply of 220MW captive supply to JSW Ispat Steel from Jan'12 from its Ratnagiri plant on cost‐plus basis with assured RoE of 20%. The OA consent has been extended for FY13 for 275MW.

Outlook & Valuation

Expect Rs. 8.3 bn and Rs. 8.6 bn consolidated PAT in FY13E and FY14E, respectively: We cut our FY13 earnings on account of lower operating income impacted by lower PLF, lower merchant realization (at Rs. 4.25 per unit vs. Rs.4.5 per unit earlier), and negative impact of INR depreciation. We now expect consolidated PAT of Rs. 8.3 bn in FY13E (vs. Rs. 11 bn earlier) and Rs. 8.6 bn in FY14E.

We Maintain Our "HOLD" Recommendation with Enhanced Target Price: We have introduced FY14E numbers for JSWEL, and accordingly we maintain our "HOLD" recommendation on the stock with enhanced target price of Rs. 56 apiece for Mar'13 (vs. Rs. 42 apiece earlier) on rollover DCF on FY14 basis discounted at 17% CoE. Based on our DCF valuations for individual projects, our new TP is Rs56, implying a 10.6xPE and 1.3x PB on FY14E. At the CMP, the stock is trading at 1.3x and 1.1x its FY13E and FY14E P/BV, respectively, and at EV/EBITDA of 7.9x on FY14E.

Risks & Concerns

JSWEL has underperformed the IPP space due to higher fuel risk, fall in merchant realization, change in Indonesian law impacting most in the near‐term, and lack of visibility for pipeline projects capping capacity growth till FY14E. Fuel security is a key issue for JSWEL, as the Company has to tie‐up long‐term coal contracts to insulate itself from volatility in the fuel prices. It has high exposure to merchant power leading to earnings volatility, which is the chief area of concern. We continue to see some of these issues to persist till FY14.

Source : Equity Bulls

Keywords