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JSW Energy Ltd. Neutral
JSWE.BO, JSW IN
A worrisome trailer to IPP sector earnings: Jun-q PAT
down 54%
JSW Energy kicked off earnings for the IPP space, reporting a 54% drop in
net profit, as expected (Rs1.36B vs our estimate of Rs1.4B). The results are
substantially lower than consensus estimates though, and underscore fuel
costing, weak state utility finances and merchant pricing risks.
Barmer continues to be in the red. The regulated return plant is shut down
since end-April with the SEB refusing to buy expensive imported coal based
power (Rs5+/Kwh) transported inland till Rajasthan. Non-recovery of fixed
cost including interest could continue to translate into losses at Barmer
(~Rs0.6bn in Jun-q). Lignite availability appears to be at least a couple of
quarters away, if not more and this is likely to delay commissioning of
balance capacity (~6x135MW) at the project.
The cash cow Vijaynagar plants are facing backdowns due to high
tariffs. Our fears on demand for merchant power given the pathetic state of
SEB financials are now materializing in JSW’s case. As we have
highlighted in our July edition of ‘Know your Power: Fuel costing the key
driver for both stock performance and PLF’, the 100% merchant flagship
plant of the company reported a PLF of 80% vs. almost full utilization last
year and in the previous quarter as well.
Estimate cuts may be necessary. Barmer remains the biggest worry, and
delay in lignite production would mean further idling of the plant and
potential inability to service debt. We believe PLF estimates for Vijaynagar
plants are in question, as also the superior merchant rate of Rs4.5/KWH that
these plants were enjoying so far. JSW is hosting a concall at 6:30PM
tomorrow (Dial in:91-22-30650143)
Our SOP based Mar-12 PT of Rs60 implies 15% downside to CMP.
Barring the 6.5% decline post results today, the stock has done well last
month, up 13%, as have other stocks that entered F&O of late. At 12.3x
FY12E P/E, we think risks persist and we have low confidence of them
abating in the near to medium term. Any convincing assurance from
management on lignite production could stem the downside, while potential
earnings cuts from lower merchant rate / PLF assumptions pose downside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Energy Ltd. Neutral
JSWE.BO, JSW IN
A worrisome trailer to IPP sector earnings: Jun-q PAT
down 54%
JSW Energy kicked off earnings for the IPP space, reporting a 54% drop in
net profit, as expected (Rs1.36B vs our estimate of Rs1.4B). The results are
substantially lower than consensus estimates though, and underscore fuel
costing, weak state utility finances and merchant pricing risks.
Barmer continues to be in the red. The regulated return plant is shut down
since end-April with the SEB refusing to buy expensive imported coal based
power (Rs5+/Kwh) transported inland till Rajasthan. Non-recovery of fixed
cost including interest could continue to translate into losses at Barmer
(~Rs0.6bn in Jun-q). Lignite availability appears to be at least a couple of
quarters away, if not more and this is likely to delay commissioning of
balance capacity (~6x135MW) at the project.
The cash cow Vijaynagar plants are facing backdowns due to high
tariffs. Our fears on demand for merchant power given the pathetic state of
SEB financials are now materializing in JSW’s case. As we have
highlighted in our July edition of ‘Know your Power: Fuel costing the key
driver for both stock performance and PLF’, the 100% merchant flagship
plant of the company reported a PLF of 80% vs. almost full utilization last
year and in the previous quarter as well.
Estimate cuts may be necessary. Barmer remains the biggest worry, and
delay in lignite production would mean further idling of the plant and
potential inability to service debt. We believe PLF estimates for Vijaynagar
plants are in question, as also the superior merchant rate of Rs4.5/KWH that
these plants were enjoying so far. JSW is hosting a concall at 6:30PM
tomorrow (Dial in:91-22-30650143)
Our SOP based Mar-12 PT of Rs60 implies 15% downside to CMP.
Barring the 6.5% decline post results today, the stock has done well last
month, up 13%, as have other stocks that entered F&O of late. At 12.3x
FY12E P/E, we think risks persist and we have low confidence of them
abating in the near to medium term. Any convincing assurance from
management on lignite production could stem the downside, while potential
earnings cuts from lower merchant rate / PLF assumptions pose downside.
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