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JSW Energy Ltd.
Neutral
JSWE.BO, JSW IN
Higher fuel costs and execution delays result in earnings cut
• Dec-q weak, as expected. 3Q adjusted PAT of Rs1.8B (down 1% qoq) was
broadly in-line with our estimate (Rs1.74B) and 20% below consensus.
Reported PLFs were broadly in line with our estimates based on CEA data:
1) Vijaynagar (860MW) - 94% PLF up 300bps qoq; 2) Ratnagiri (300MW)
- 73%, impacted by teething issues, lower demand; and 3) Barmer
(2x135MW) - 61.5%, equipment breakdown and fuel transportation
logistics. Despite increase in operating capacity, EBITDA margins
declined by ~550bps qoq: 1) ST realizations of Rs4.87/kwh in 3Q vs
Rs4.65/kwh in 2Q, but below our estimate of Rs5; 2) higher landed fuel
cost/unit of Rs2.7/kwh (or implied ~US$140/MT for 6,100Kcal/kg coal).
• Exposure to spot coal prices erodes profitability. We delay
commissioning of Barmer (Rajasthan SEB to be averse on buying expensive
power and on logistical issues on coal transportation) and Ratnagiri
(shortage of sand procurement) and assume a 3-4 month buffer in estimates.
Also on account of increased coal costs, we reduce our FY11 and FY12
estimates by 32% and 25%, respectively. At the analyst meet, management
conceded to a 15% qoq increase in coal cost for the Mar-q. Increasing coal
prices continue to hurt bottom line as although captive coal from South
Africa is expected to come through in FY12, quantity is minimal (1MT).
Whereas linkage coal for Barmer (on regulated returns) remains elusive and
land acquisition for the Jalipa lignite mines is a challenge. Management
expects lignite production from Kaprudi to commence in 4QFY11.
• We reduce our Mar-12 SOTP-based price target to Rs93 from Rs116
earlier; maintain Neutral. The stock has underperformed Sensex by ~24%
over the last 3 months, and over the same period, benchmark coal prices
have increased ~15%. Based on the nascent stage of development of the
captive mine associated with the West Bengal project (Rs1,620MW) and the
initial execution thrust for only 300MW, we reduce the value for the project
to Rs3/share from Rs20.5/share earlier. Our SOTP valuation includes Rs80.4
for operational/under-construction projects and Rs3.5/share for pipeline
projects. At 8.4x FY12E EV/EBITDA, the stock is at a discount to other
IPPs, which is warranted in our view due to poor pipeline visibility and fuel
price risks. Higher-than-expected merchant prices or PLFs are upside risks.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Energy Ltd.
Neutral
JSWE.BO, JSW IN
Higher fuel costs and execution delays result in earnings cut
• Dec-q weak, as expected. 3Q adjusted PAT of Rs1.8B (down 1% qoq) was
broadly in-line with our estimate (Rs1.74B) and 20% below consensus.
Reported PLFs were broadly in line with our estimates based on CEA data:
1) Vijaynagar (860MW) - 94% PLF up 300bps qoq; 2) Ratnagiri (300MW)
- 73%, impacted by teething issues, lower demand; and 3) Barmer
(2x135MW) - 61.5%, equipment breakdown and fuel transportation
logistics. Despite increase in operating capacity, EBITDA margins
declined by ~550bps qoq: 1) ST realizations of Rs4.87/kwh in 3Q vs
Rs4.65/kwh in 2Q, but below our estimate of Rs5; 2) higher landed fuel
cost/unit of Rs2.7/kwh (or implied ~US$140/MT for 6,100Kcal/kg coal).
• Exposure to spot coal prices erodes profitability. We delay
commissioning of Barmer (Rajasthan SEB to be averse on buying expensive
power and on logistical issues on coal transportation) and Ratnagiri
(shortage of sand procurement) and assume a 3-4 month buffer in estimates.
Also on account of increased coal costs, we reduce our FY11 and FY12
estimates by 32% and 25%, respectively. At the analyst meet, management
conceded to a 15% qoq increase in coal cost for the Mar-q. Increasing coal
prices continue to hurt bottom line as although captive coal from South
Africa is expected to come through in FY12, quantity is minimal (1MT).
Whereas linkage coal for Barmer (on regulated returns) remains elusive and
land acquisition for the Jalipa lignite mines is a challenge. Management
expects lignite production from Kaprudi to commence in 4QFY11.
• We reduce our Mar-12 SOTP-based price target to Rs93 from Rs116
earlier; maintain Neutral. The stock has underperformed Sensex by ~24%
over the last 3 months, and over the same period, benchmark coal prices
have increased ~15%. Based on the nascent stage of development of the
captive mine associated with the West Bengal project (Rs1,620MW) and the
initial execution thrust for only 300MW, we reduce the value for the project
to Rs3/share from Rs20.5/share earlier. Our SOTP valuation includes Rs80.4
for operational/under-construction projects and Rs3.5/share for pipeline
projects. At 8.4x FY12E EV/EBITDA, the stock is at a discount to other
IPPs, which is warranted in our view due to poor pipeline visibility and fuel
price risks. Higher-than-expected merchant prices or PLFs are upside risks.
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