JSW Energy - Adj PAT in line, but valuation remains stretched - HDFC Securities

Mr. Anuj Upadhyay, Institutional Research Analyst, HDFC Securities

Net generation increased 4.3% YoY to 5.1bn unit, led by strong generation across the thermal plant, partially offset by lower output across the hydro stations due to less water flow (YoY). Accordingly, PLF declined across the hydro plant, while it improved for the thermal stations. EBITDA/PAT decreased 6.3%/5.0% YoY to INR7.0bn/INR2.1bn due to increased other expenses and one-off costs related to prepayment charges. After adjusting for this, PAT increased 36% YoY to INR2.6bn (in line with our estimate). The company expects to add 15.5GW of RES capacity by FY30, of which 2.5GW would be added by FY24. It has signed a PPA for 2.25GW of these capacities until date. It plans to venture into the green hydrogen business and demerge from the renewable segment, but these developments are in nascent stages. JSW Energy's current net D/E stands at 0.4x, while net debt/EBITDA stands at 2.1x. However, we maintain our TP of INR118/share and SELL rating, as the stock price has risen substantially to INR244, which seems unjustifiable to our valuation metrics (RoE - ~7%, FY23 P/E - 37.3x, P/BV - 2.5x).

Thermal generation impressive: Net generation increased 4.3% YoY to 5.1bn unit, led by higher generation across the thermal plant (+13% YoY), partially offset by lower generation across the hydro stations (-15% YoY) due to lower water flow (YoY). Accordingly, PLF improved across its Ratnagiri/Barmer/Vijaynagar stations by 178bps/310bps/1955 bps YoY to 59%/73%/43%, while it declined across hydro plants by 890bps YoY to 49%. Revenue declined 4.3% YoY to INR17.3bn in Q1FY22 due to a reduction attributable to the impact of job work at the standalone entity. EBITDA and PAT decreased 6.3%/5.0% YoY to INR7.0bn/INR2.1bn due to increased other expenses and one-off costs related to prepayment charges and a write-off related to repayment of rupee denominated loans. After adjusting for the same, PAT increased 36% YoY to INR2.6bn (in line with our estimate).

PPA signed for 2.25GW of RES capacity: The company expects to add 15.5GW of RES capacity by FY30, of which 2.5GW would be added by FY24. It has signed a PPA for 2.25GW of these capacities. JSW Energy has one the strongest balance sheets in the industry with the current net D/E at 0.4x and it generates a strong cash flow of~ INR17bn-21bn p.a., which is sufficient to meet its equity Capex for the upcoming RES capacities.

Maitain a SELL on expensive valuation: We maintain our PAT estimates for FY22/23 and TP of INR118. However, the stock price has surged substantially to INR244, which seems unjustifiable to our valuation metrics (RoE - ~7%, FY23 P/E - 23.5x, P/BV - 1.6x). Hence, we retain our SELL rating on it.

Shares of JSW Energy Limited was last trading in BSE at Rs. 243.9 as compared to the previous close of Rs. 250.5. The total number of shares traded during the day was 110662 in over 1627 trades.

The stock hit an intraday high of Rs. 257.5 and intraday low of 238.8. The net turnover during the day was Rs. 27009097.

Source : Equity Bulls

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