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JSW Energy
RECO : REDUCE TP : Rs78
Investment Rationale
§ One of the most experienced IPPs with execution of its under construction phase at advance stage; to add
2,010MW in FY10-FY12E
§ But both side open- off take for 68% of the planned capacity not tied up and 51%-74% (excluding Barmer Lignite)
of the fuel requirements (FY11E-FY17E) not tied up; Very risky strategy & consequently, very high sensitivity to
fuel prices & merchant rates
§ Keeping the off take open without any domestic coal linkages (except Lignite for its Barmer project) and high cost
imported coal to place the company at a disadvantage as compared to its peers in terms of cost of production
Valuations
§ Current valuations imply (1) long term merchant rate of Rs3.5/unit (30% premium to our long term sustainable
merchant rate assumption of Rs2.7/unit) (2) EVM of Rs34mn/MW (7% premium to coverage universe). At CMP
of Rs72/share, JSW Energy is trading at 1.7xFY12E Book with an FY11E-15E average ROE of 15%. We have
‘Reduce’ rating on the company with a DCF based price target of Rs78/share. Key risk to our call- (1)Significant
fuel & off-take tie ups at competitive rates and (2) higher merchant rates
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Energy
RECO : REDUCE TP : Rs78
Investment Rationale
§ One of the most experienced IPPs with execution of its under construction phase at advance stage; to add
2,010MW in FY10-FY12E
§ But both side open- off take for 68% of the planned capacity not tied up and 51%-74% (excluding Barmer Lignite)
of the fuel requirements (FY11E-FY17E) not tied up; Very risky strategy & consequently, very high sensitivity to
fuel prices & merchant rates
§ Keeping the off take open without any domestic coal linkages (except Lignite for its Barmer project) and high cost
imported coal to place the company at a disadvantage as compared to its peers in terms of cost of production
Valuations
§ Current valuations imply (1) long term merchant rate of Rs3.5/unit (30% premium to our long term sustainable
merchant rate assumption of Rs2.7/unit) (2) EVM of Rs34mn/MW (7% premium to coverage universe). At CMP
of Rs72/share, JSW Energy is trading at 1.7xFY12E Book with an FY11E-15E average ROE of 15%. We have
‘Reduce’ rating on the company with a DCF based price target of Rs78/share. Key risk to our call- (1)Significant
fuel & off-take tie ups at competitive rates and (2) higher merchant rates
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