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JSWE posted an Rs317mn 2QFY12 net loss (vs. our/consensus forecast PAT of Rs202mn/Rs657mn); the earnings miss was driven by lower merchant realizations and unexpected sale on conversion/banking basis resulting in an EBTIDA of Rs1.1bn (56% below our forecast). Analyst meet takeaways: 1) Mgmt upbeat on 2HFY12 profitability on the back of capacity tie-ups, higher utilization and 15-20% expected drop in fuel cost, 2) RWPL operational, but ad-hoc tariffs cover only cash fixed costs, 3) SACMH is still not profitable. Our earnings forecasts and TP are under review; and we maintain our Reduce rating
3-pt summary of 2QFY12 financials
JSWE posted disappointing 2QFY12 financials, significantly below expectations Consolidated EBITDA of Rs1.1bn (56%/66% below our/consensus forecast) translated into a net loss of Rs317mn (vs. our/consensus forecast net profit of Rs202mn/Rs657mn). At Rs1.1bn, the reported net loss was exaggerated by unrealized exchange fluctuation loss of Rs788mn.
Merchant realization, sale on ‘conversion / banking arrangements’ were negative surprises While net generation and fuel cost were in line with our forecasts, generation revenues and EBITDA were significantly lower owing to: 1) merchant realization was Rs3.86/kWh (9% below our forecast of Rs4.25/kWh); 2) 229MUs (9% of net generation) was sold to JSW Steel at Rs1.3/kWh, on a conversion basis (ie, on a variable cost basis); and 3) offtake of 286MUs (11% of net generation) was made under a ‘banking arrangement’ for which no revenues were booked in the current quarter (cost of generation at Rs4.24/kWh was taken as ‘inventory’ to be realized in 2HFY12 when the banked power would be available for sale).
SACMH remains in the red, no fixed cost recovery at RWPL Although production in SACMH (JSWE’s South African coal mining operations) was higher QoQ, operations just about reached break-even at the EBITDA level. As its RWPL facility was not operational owing to the absence of ad-hoc tariffs and transfer price for supply of lignite (by BLMCL to RWPL) by the Rajasthan State Regulator (RERC), there was no fixed cost recovery
3-pt summary of 2QFY12 financials
JSWE posted disappointing 2QFY12 financials, significantly below expectations Consolidated EBITDA of Rs1.1bn (56%/66% below our/consensus forecast) translated into a net loss of Rs317mn (vs. our/consensus forecast net profit of Rs202mn/Rs657mn). At Rs1.1bn, the reported net loss was exaggerated by unrealized exchange fluctuation loss of Rs788mn.
Merchant realization, sale on ‘conversion / banking arrangements’ were negative surprises While net generation and fuel cost were in line with our forecasts, generation revenues and EBITDA were significantly lower owing to: 1) merchant realization was Rs3.86/kWh (9% below our forecast of Rs4.25/kWh); 2) 229MUs (9% of net generation) was sold to JSW Steel at Rs1.3/kWh, on a conversion basis (ie, on a variable cost basis); and 3) offtake of 286MUs (11% of net generation) was made under a ‘banking arrangement’ for which no revenues were booked in the current quarter (cost of generation at Rs4.24/kWh was taken as ‘inventory’ to be realized in 2HFY12 when the banked power would be available for sale).
SACMH remains in the red, no fixed cost recovery at RWPL Although production in SACMH (JSWE’s South African coal mining operations) was higher QoQ, operations just about reached break-even at the EBITDA level. As its RWPL facility was not operational owing to the absence of ad-hoc tariffs and transfer price for supply of lignite (by BLMCL to RWPL) by the Rajasthan State Regulator (RERC), there was no fixed cost recovery
Management indicated that the bulk of its sales remain concentrated to Maharashtra and Karnataka. As regards payment of dues by SEBs, besides a Rs620mn overdue from Tamil Nadu, all recoveries are mostly within 30 days of the monthly billing.
Coal supply from Indonesia – procuring on the spot, but looking at medium-term tie-ups
Management mentioned that it targets a mix of 75% (low-grade INA coal) and 25% (high-grade RSA coal) at both its Ratnagiri and Vijayanagar facilities in 2HFY12 (coal mix was 68% INA and 32% RSA at Ratnagiri and 20% INA and 80% RSA at Vijayanagar), and consequently lower overall fuel cost. While it continues to procure coal on a spot basis, it is looking to medium-term tie-ups as seaborne thermal coal prices are beginning to cool off. JSWE has already floated a tender to secure 1.8MT of coal from Indonesia during Jan-Sep 2012. As regards coal production from SACMH, it would continue to be sold externally and act as a partial a hedge to coal procurement cost for JSWE.
RWPL – ad-hoc tariffs cover only cash fixed costs, do not realize any RoE
As ad-hoc tariffs for Units1-4 have been approved by RERC, the units are being progressively commissioned (Units1-3 are operational) and will be fired by lignite sourced from the Kapurdi mines. Management stated that at the ad-hoc tariffs, RWPL does not earn any RoE and recovers only ‘cash fixed cost’, it would look to recover the losses only in its petition for the final tariff orders (ie, after provisional tariffs are determined).
Pending a meeting with management to secure clarity on SACMH, RWPL and offtake to Group firms, our earnings estimates and target price for JSWE remain under review.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSWE posted an Rs317mn 2QFY12 net loss (vs. our/consensus forecast PAT of Rs202mn/Rs657mn); the earnings miss was driven by lower merchant realizations and unexpected sale on conversion/banking basis resulting in an EBTIDA of Rs1.1bn (56% below our forecast). Analyst meet takeaways: 1) Mgmt upbeat on 2HFY12 profitability on the back of capacity tie-ups, higher utilization and 15-20% expected drop in fuel cost, 2) RWPL operational, but ad-hoc tariffs cover only cash fixed costs, 3) SACMH is still not profitable. Our earnings forecasts and TP are under review; and we maintain our Reduce rating
3-pt summary of 2QFY12 financials
JSWE posted disappointing 2QFY12 financials, significantly below expectations Consolidated EBITDA of Rs1.1bn (56%/66% below our/consensus forecast) translated into a net loss of Rs317mn (vs. our/consensus forecast net profit of Rs202mn/Rs657mn). At Rs1.1bn, the reported net loss was exaggerated by unrealized exchange fluctuation loss of Rs788mn.
Merchant realization, sale on ‘conversion / banking arrangements’ were negative surprises While net generation and fuel cost were in line with our forecasts, generation revenues and EBITDA were significantly lower owing to: 1) merchant realization was Rs3.86/kWh (9% below our forecast of Rs4.25/kWh); 2) 229MUs (9% of net generation) was sold to JSW Steel at Rs1.3/kWh, on a conversion basis (ie, on a variable cost basis); and 3) offtake of 286MUs (11% of net generation) was made under a ‘banking arrangement’ for which no revenues were booked in the current quarter (cost of generation at Rs4.24/kWh was taken as ‘inventory’ to be realized in 2HFY12 when the banked power would be available for sale).
SACMH remains in the red, no fixed cost recovery at RWPL Although production in SACMH (JSWE’s South African coal mining operations) was higher QoQ, operations just about reached break-even at the EBITDA level. As its RWPL facility was not operational owing to the absence of ad-hoc tariffs and transfer price for supply of lignite (by BLMCL to RWPL) by the Rajasthan State Regulator (RERC), there was no fixed cost recovery
3-pt summary of 2QFY12 financials
JSWE posted disappointing 2QFY12 financials, significantly below expectations Consolidated EBITDA of Rs1.1bn (56%/66% below our/consensus forecast) translated into a net loss of Rs317mn (vs. our/consensus forecast net profit of Rs202mn/Rs657mn). At Rs1.1bn, the reported net loss was exaggerated by unrealized exchange fluctuation loss of Rs788mn.
Merchant realization, sale on ‘conversion / banking arrangements’ were negative surprises While net generation and fuel cost were in line with our forecasts, generation revenues and EBITDA were significantly lower owing to: 1) merchant realization was Rs3.86/kWh (9% below our forecast of Rs4.25/kWh); 2) 229MUs (9% of net generation) was sold to JSW Steel at Rs1.3/kWh, on a conversion basis (ie, on a variable cost basis); and 3) offtake of 286MUs (11% of net generation) was made under a ‘banking arrangement’ for which no revenues were booked in the current quarter (cost of generation at Rs4.24/kWh was taken as ‘inventory’ to be realized in 2HFY12 when the banked power would be available for sale).
SACMH remains in the red, no fixed cost recovery at RWPL Although production in SACMH (JSWE’s South African coal mining operations) was higher QoQ, operations just about reached break-even at the EBITDA level. As its RWPL facility was not operational owing to the absence of ad-hoc tariffs and transfer price for supply of lignite (by BLMCL to RWPL) by the Rajasthan State Regulator (RERC), there was no fixed cost recovery
Management indicated that the bulk of its sales remain concentrated to Maharashtra and Karnataka. As regards payment of dues by SEBs, besides a Rs620mn overdue from Tamil Nadu, all recoveries are mostly within 30 days of the monthly billing.
Coal supply from Indonesia – procuring on the spot, but looking at medium-term tie-ups
Management mentioned that it targets a mix of 75% (low-grade INA coal) and 25% (high-grade RSA coal) at both its Ratnagiri and Vijayanagar facilities in 2HFY12 (coal mix was 68% INA and 32% RSA at Ratnagiri and 20% INA and 80% RSA at Vijayanagar), and consequently lower overall fuel cost. While it continues to procure coal on a spot basis, it is looking to medium-term tie-ups as seaborne thermal coal prices are beginning to cool off. JSWE has already floated a tender to secure 1.8MT of coal from Indonesia during Jan-Sep 2012. As regards coal production from SACMH, it would continue to be sold externally and act as a partial a hedge to coal procurement cost for JSWE.
RWPL – ad-hoc tariffs cover only cash fixed costs, do not realize any RoE
As ad-hoc tariffs for Units1-4 have been approved by RERC, the units are being progressively commissioned (Units1-3 are operational) and will be fired by lignite sourced from the Kapurdi mines. Management stated that at the ad-hoc tariffs, RWPL does not earn any RoE and recovers only ‘cash fixed cost’, it would look to recover the losses only in its petition for the final tariff orders (ie, after provisional tariffs are determined).
Pending a meeting with management to secure clarity on SACMH, RWPL and offtake to Group firms, our earnings estimates and target price for JSWE remain under review.
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