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JSW Energy (JSW)
Utilities
Weak operational quarter. JSW Energy registered a 38% qoq decline in operating
income despite improved merchant realizations and capacity addition during the
quarter. Disappointment was driven by (1) lower generation and (2) margin contraction
on account of higher O&M and fuel cost. We continue to remain skeptical on the
extant model which is significantly leveraged to spot markets and we do not see
significant progress on development projects. Maintain SELL with revised target price of
Rs70 (previously Rs74).
Operating profits miss estimates on lower generation, higher overheads and fuel cost
JSW Energy reported consolidated revenues of Rs11.5 bn (23% yoy, -20% qoq), operating profit
of Rs2.7 bn (-41% yoy, -38% qoq) and net income of Rs1.4 bn (-54% yoy, -34% qoq) against our
estimate of Rs12.9 bn, Rs3.9 bn and Rs1.4 bn, respectively. Lower-than-estimated revenue was
primarily on account of lower generation (net generation of 2,422 MU against estimated 2,901
MU). Significant EBITDA miss was driven by (1) higher O&M and overhead expenditure and (2)
higher-than-estimated fuel cost (Rs2.7/kwh against estimated Rs2.6/kwh). We, however, note that
average realizations remained strong at Rs4.65/kwh primarily due to healthy merchant realizations
of Rs5/kwh in 1QFY12. Higher-than-estimated other income yielded an in-line PAT. We discuss key
highlights of 1QFY12 results in detail in a subsequent section.
PLFs take a beating as state utilities back down on power purchase
JSW Energy registered a 20% sequential decline in net generation despite addition of 300 MW
during the quarter. Management has attributed the decline to (1) back down by state discoms in
the month of June, (2) maintenance shutdown of units at Ratnagiri and Vijaynagar (3) suspension
of operations at Barmer since May pending tariff approval by the regulator. We highlight that
availibility of cheaper hydro power due to early onset of monsoon could be one of the reasons for
state discoms backing down on purchase of thermal power.
Extant portfolio geared to spot market, development portfolio offers limited traction
We reiterate our cautious stance on JSW Energy as we believe that extant portfolio is highly
leveraged to spot market while sluggish execution of development portfolio offers limited visibility
for growth. JSW Energy’s has an estimated dependence of ~4.3 mtpa on spot purchase of coal
(see Exhibit 3) coupled with 60% of power likely to be sold in the short-term market. We further
note that beyond the current portfolio of projects under construction, aggregating to 3,140 MW
(of which 2,030 MW has already been either commissioned or synchronized), there is limited
visibility on the development portfolio of 8.2 GW.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Energy (JSW)
Utilities
Weak operational quarter. JSW Energy registered a 38% qoq decline in operating
income despite improved merchant realizations and capacity addition during the
quarter. Disappointment was driven by (1) lower generation and (2) margin contraction
on account of higher O&M and fuel cost. We continue to remain skeptical on the
extant model which is significantly leveraged to spot markets and we do not see
significant progress on development projects. Maintain SELL with revised target price of
Rs70 (previously Rs74).
Operating profits miss estimates on lower generation, higher overheads and fuel cost
JSW Energy reported consolidated revenues of Rs11.5 bn (23% yoy, -20% qoq), operating profit
of Rs2.7 bn (-41% yoy, -38% qoq) and net income of Rs1.4 bn (-54% yoy, -34% qoq) against our
estimate of Rs12.9 bn, Rs3.9 bn and Rs1.4 bn, respectively. Lower-than-estimated revenue was
primarily on account of lower generation (net generation of 2,422 MU against estimated 2,901
MU). Significant EBITDA miss was driven by (1) higher O&M and overhead expenditure and (2)
higher-than-estimated fuel cost (Rs2.7/kwh against estimated Rs2.6/kwh). We, however, note that
average realizations remained strong at Rs4.65/kwh primarily due to healthy merchant realizations
of Rs5/kwh in 1QFY12. Higher-than-estimated other income yielded an in-line PAT. We discuss key
highlights of 1QFY12 results in detail in a subsequent section.
PLFs take a beating as state utilities back down on power purchase
JSW Energy registered a 20% sequential decline in net generation despite addition of 300 MW
during the quarter. Management has attributed the decline to (1) back down by state discoms in
the month of June, (2) maintenance shutdown of units at Ratnagiri and Vijaynagar (3) suspension
of operations at Barmer since May pending tariff approval by the regulator. We highlight that
availibility of cheaper hydro power due to early onset of monsoon could be one of the reasons for
state discoms backing down on purchase of thermal power.
Extant portfolio geared to spot market, development portfolio offers limited traction
We reiterate our cautious stance on JSW Energy as we believe that extant portfolio is highly
leveraged to spot market while sluggish execution of development portfolio offers limited visibility
for growth. JSW Energy’s has an estimated dependence of ~4.3 mtpa on spot purchase of coal
(see Exhibit 3) coupled with 60% of power likely to be sold in the short-term market. We further
note that beyond the current portfolio of projects under construction, aggregating to 3,140 MW
(of which 2,030 MW has already been either commissioned or synchronized), there is limited
visibility on the development portfolio of 8.2 GW.
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