JSW Energy - Not the time to be positive, Downgrade to 'Sell' - Emkay

Reco: SELL
CMP: Rs 54
Target Price: Rs 38

- Realized/unrealized forex loss of Rs0.3bn/2.0bn pertains to buyers' credit (fuel) of $442mn at 1Q13 end; 1Q13 fuel cost at Rs2.6/unit, down 10%yoy and 2%qoq, on the higher side due to use of inventory

- Foresee no. of states resorting to cap power purchase tariffs through 4Q13/FY14 - to impact JSW energy's PLFs/tariffs (highest marginal cost generator) which will further be impacted if coal price pooling is implemented (current assumed PLF 80-85%)

- JSW energy's projects' combined equity is ~Rs50bn vs. Mkt cap at Rs75bn (adj. for cash and stake in JSW steel) - implying aggressive lifecycle ROE of 20% +, unlikely given its business model

- Negative value of buyers credit (Rs15/share) not being captured by consensus. Further, valuations not cheap at 1.4x FY13 book & 12.5x FY13 EPS; Downgrade to Sell with price target of Rs38/share.

Source : Equity Bulls

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