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JSW Energy Ltd.
Neutral; JSWE.BO, JSW IN
Exposed to rising imported coal prices, pushbacks in execution
• JSW Energy has the highest exposure to global spot coal prices, as
well as the domestic merchant market for its current operating MW.
Global coal prices are rising, while domestic merchant prices have
declined. Cost of power generation, at ~Rs3.9/unit, is the highest in our
universe due to predominance of imported coal. Delay in captive lignite
mining for the Barmer project and use of expensive imported coal as an
interim measure, has culminated in a pushback in execution of this
1,080MW project. These factors had led us to cut estimates post results.
• Given the aversion of state utilities toward expensive power, we
think JSWE’s plants run the risk of having to back down
generation. We now trim our estimates further by 14%/13% for
FY12/FY13, factoring in the risk of lower PLFs for Ratnagiri (1.2GW,
based on imported coal), Barmer (1,080MW, to source coal from lignite
mines post FY12, tapering linkage not coming through yet and plant is
running on imported coal) and West Bengal (300MW, based on capitve
coal). This reduces our fair value estimate to Rs83. We take an
additional ~20% discount to fair value, to build in risk of further
estimate cuts on the back of execution delays and a rise in coal prices.
Our new Mar-12 PT is Rs67.
• Notwithstanding the recent underperformance of the stock and
cheap valuation, we believe the stock will not provide meaningful
upside unless the company gets long-term coal tie-ups at predictable
prices and/or has back-to-back medium-long-term power purchase
agreements with appropriate hedges against fuel escalation. This would
have to be supported by visibility on lignite mining and completion of
the Barmer project. We maintain our Neutral rating, and recommend
switching to TPWR/Adani.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Energy Ltd.
Neutral; JSWE.BO, JSW IN
Exposed to rising imported coal prices, pushbacks in execution
• JSW Energy has the highest exposure to global spot coal prices, as
well as the domestic merchant market for its current operating MW.
Global coal prices are rising, while domestic merchant prices have
declined. Cost of power generation, at ~Rs3.9/unit, is the highest in our
universe due to predominance of imported coal. Delay in captive lignite
mining for the Barmer project and use of expensive imported coal as an
interim measure, has culminated in a pushback in execution of this
1,080MW project. These factors had led us to cut estimates post results.
• Given the aversion of state utilities toward expensive power, we
think JSWE’s plants run the risk of having to back down
generation. We now trim our estimates further by 14%/13% for
FY12/FY13, factoring in the risk of lower PLFs for Ratnagiri (1.2GW,
based on imported coal), Barmer (1,080MW, to source coal from lignite
mines post FY12, tapering linkage not coming through yet and plant is
running on imported coal) and West Bengal (300MW, based on capitve
coal). This reduces our fair value estimate to Rs83. We take an
additional ~20% discount to fair value, to build in risk of further
estimate cuts on the back of execution delays and a rise in coal prices.
Our new Mar-12 PT is Rs67.
• Notwithstanding the recent underperformance of the stock and
cheap valuation, we believe the stock will not provide meaningful
upside unless the company gets long-term coal tie-ups at predictable
prices and/or has back-to-back medium-long-term power purchase
agreements with appropriate hedges against fuel escalation. This would
have to be supported by visibility on lignite mining and completion of
the Barmer project. We maintain our Neutral rating, and recommend
switching to TPWR/Adani.
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