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JSW Energy Q4FY21 Results Review Report - Strong renewable plan but valuation stretched - HDFC Securities



Posted On : 2021-06-29 13:13:25( TIMEZONE : IST )

JSW Energy Q4FY21 Results Review Report - Strong renewable plan but valuation stretched - HDFC Securities

Mr. Anuj Upadhyay, Institutional Research Analyst, HDFC Securities

Net generation/revenue declined 7.6%/12.5% YoY to 3.8bn unit/INR15.7bn in Q4FY21 due to lower short-term (ST) sales and merchant realisation. PLF declined across the Ratnagiri plant and Hydro plants (given poor hydrology), but improved across its Vijaynagar and Barmer stations. PAT, however, increased 16.5% YoY to INR1.1bn, led by savings in interest cost due to debt repayments. The company expects to add 15.5GW of RES capacity by FY30, of which 2.5GW is expected to be added by FY24. JSW Energy has one the strongest balance sheets in the industry with the current net D/E of 0.5x. The company generates a strong cash flow of~ INR20bn-25bn p.a., which is sufficient to meet its equity Capex for the upcoming RES capacities. Accordingly, we upgrade our TP to INR118/share to factor in RES valuations. However, the stock has witnessed a substantial rise in its price to INR154, which seems unjustifiable to our valuation metrics (RoE - ~7%, FY23 P/E - 23.5x, P/BV - 1.6x). Hence, we downgrade our rating to SELL.

Demand impacts topline; lower interest and O&M expenses boost PAT: Revenue declined 12.5% YoY in Q4FY21 due to fall of 7.6%/5.3% YoY in generation/realisation, given a fall in short-term power demand. While PLF declined across its Ratnagiri/Hydro plants by 2,130bps/150bps YoY to 50%/14%, it increased across Vijaynagar/Barmer plants by 550bps/870bps YoY to 40%/72%. EBITDA, however, increased 10% YoY to INR6.3bn, aided by lower O&M and fuel expenses, while PAT increased 16.5% YoY to INR1.1bn, fueled by lower interest expenses. JSW Energy also announced a final dividend of INR2/share (40% payout and 1.3% yield).

Targets to add 15.5GW of RES by FY30: The company expects to add 15.5GW of RES capacity by FY30, of which 2.5GW is expected to be added by FY24. For FY22E/23E, it expects to add 200MW/1.5GW capacity and has signed PPA for 540MW of these capacities. For the balance ~2GW capacity, it expects to finalise the PPA by Q2FY22 end. The blended tariff for these projects is ~INR3.3/unit with an estimated Capex of INR158bn (equity - INR32bn; D/E 80:20). JSW Energy has one the strongest balance sheets in the industry with the current net D/E of 0.5x and generates a strong cash flow of~ INR17bn-21bn p.a. (after annual debt repayment of ~INR3bn), which is sufficient to meet its equity Capex for the upcoming RES capacities.

Downgrade to SELL on expensive valuation: We have lowered our PAT estimates for FY22/23 to factor in lower merchant rates. However, we have revised our SoTP TP upward to INR118, factoring in the company's upcoming 2.5GW RES capacity and increased investment value across JSW Steel. However, the stock has witnessed a substantial rise in its price to INR154, which seems unjustifiable to our valuation metrics (RoE - ~7%, FY23 P/E - 23.5x, P/BV - 1.6x). Hence, we downgrade to SELL from REDUCE.

Shares of JSW Energy Ltd was last trading in BSE at Rs.153.55 as compared to the previous close of Rs. 153.9. The total number of shares traded during the day was 282998 in over 4228 trades.

The stock hit an intraday high of Rs. 157.25 and intraday low of 151.7. The net turnover during the day was Rs. 43820854.

Source : Equity Bulls

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