JSW Energy:Higher fuel cost impacts margins: JM Financial

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Higher fuel cost impacts margins
􀂄 Revenue growth continues unabated: Sales at `8.5bn are 11% ahead of JMFe
and up 50% YoY, primarily driven by a 47% increase in generation and income
booked on account of project consultancy (`670mn). Average realisation for
the quarter declined to `4.3/unit from `4.61/unit in 2Q10.


􀂄 Merchant realisation at `4.65/unit as the firm sold 64% of units in ST
market mainly through bilateral contacts. Its LT PPA realisation stood at
`3.78. As mentioned in our report dated Oct 5 “Concerns Unwarranted”, JSW
has entered into short-term contracts (three to six months) for sale of its
merchant power (Vijaynagar 600MW), averaging FY11 realisations between
`5.0-5.2/kWh.
􀂄 Margins hit by spike in fuel cost: Cost of fuel increased from 1.8/unit to
2.6/unit as imported coal price rose during the quarter. The company
sourced spot coal primarily from South Africa (landed price at US$135/MT)
which resulted in higher fuel bill. However, management expects to increase
the supply from Indonesia (landed cost at US$46-47/MT CIF) and from SACMH
by the end of 3Q11 ($65/MT FOB). JSW received its first shipment of 50,000T
in October and expects the number of shipments from Indonesia to increase
to 2-3 shipments per month in the long-term. Shipment of 75,000MT from
SACMH is expected in December. We expect coal cost to decline in 4Q11 on
availability of contracted coal.
􀂄 Refinancing to reduce cost of borrowing: JSW has refinanced debt to the
tune of `100bn at an increased duration of debt with c1.5% reduction in
interest rates. Debt for the company stands at `86.3bn with `10bn cash.
􀂄 Operational performance: Vijaynager unit generated 1.6BUs at a PLF of 91%
for the quarter. Ratnagiri unit (123MUs) faced line tripping and teething
troubles, resulting in a below par PLF of 63%. Barmer Unit-I faced lining
breakdown which resulted in closure for 56 days. As a result, the unit
operated at a PLF of 27%, generating 63MUs. Based on our discussions with
the management, breakdown will have negligible cost implication and Barmer
units (I & II) are at present operating at a PLF >100%.
􀂄 Projects update: 2nd unit of Ratnagiri (4X300MW) expected to be
commissioned in November: The Company plans to commission 3rd and 4th
units by the end of financial year. 2nd unit of Barmer (8X135MW)
commissioned on 4th Oct with remaining units to be commissioned by
1QFY12. Kutehr project (3X80MW) received TEC from CEA and environmental
clearance is in progress. Lignite mining project at Kapurdi mines is expected
to commence operation in 4QFY11.
􀂄 Board approves 660MW expansion project in Vijaynagar with a project cost
of `33bn to be financed with debt:equity mix of 3:1. The project is slated to
commence operations from Nov’14.