1 November 2017
2QFY18 Results Update | Sector: Utilities
JSW Energy
BSE SENSEX
33,600
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
S&P CNX
10,441
JSW IN
1,640
139.9 / 2.2
88 / 54
8/24/7
601
25.0
CMP: INR85
TP: INR51(-40%)
Sell
In-line; sharp reduction in net debt and interest cost
Merchant prices higher, but coal prices also increasing; Maintain Sell
JSW Energy’s (JSWE) 2QFY18 EBITDA declined 8% YoY to INR8.8b (in-line). PAT was
up 37% YoY to INR2.9b due to certain one-offs in other income (+230% YoY to
INR1.7b). Standalone EBITDA increased ~23% YoY (to INR2b) due to higher
realization and low-cost imported coal inventory. However, it was more than offset
by weakness at the Barmer power plant. Other key highlights:
Impressive reduction in net debt of INR10b QoQ to ~INR127b on receivables
and some recovery from JPVL (INR1.5b of INR10b). Balance sheet at 1.13x D:E
is very strong.
Reduced interest cost by 72bp QoQ/104bp YoY to 9.3%.
It has applied for long-term PPA with the regulator of Haryana and Punjab for
open capacity of 376MW at the Karcham Wangtoo plant. Our estimates do not
change materially, as our merchant price estimate is similar to the PPA rates.
JSWE will set-up a 36MW captive power plant for JSW Cement at a capex of
INR1.6b over the next two years. Tariff will be on a regulated structure.
On the electric vehicle venture, it has signed an MoU with the Gujarat state to
set-up manufacturing capacity. It is in process of developing partnerships,
product and technology strategy, and hiring talent.
Upgrade estimates on other income and lower interest cost; Maintain Sell
We have increased merchant price estimate for 3Q, but coal prices have also
increased. Resultantly, EBITDA has minor changes. PAT is upgraded by 21%/22% to
INR6.6b/5.4b for FY18/19E on beat in other income and lower interest cost. JSWE’s
merchant power capacities are exposed to the over-supplied power market and
imported coal prices. The venture into EVs, though exciting, has increased the risk
profile. We are building in planned investment of INR40b over the next three-years,
but do not ascribe any value to this investment. For single-digit RoEs, the stock is
trading at 1.3x FY19E P/BV. We maintain
Sell
with an SOTP-based TP of INR51/sh.
1Q
22,316
-8.9
13,628
8,688
38.9
2,428
3,963
1,025
3,323
1,114
33.5
36
2,173
2,173
-40.7
FY18
2Q
3QE
20,490 21,598
0.1
13.4
11,667 14,729
8,824 6,869
43.1
31.8
2,449 2,446
3,910 3,850
1,705
300
4,170
873
1,202
236
28.8
27.0
-1
60
2,969
577
2,969
577
36.6
169.7
FY17
4QE
23,230
24.8
17,033
6,197
26.7
2,377
3,614
573
778
-82
-10.6
-30
891
891
267.9
82,634
-17.1
49,391
33,244
40.2
9,692
16,848
2,170
8,875
2,685
30.3
-106
6,295
6,295
-51.2
FY18E
87,635
6.1
57,057
30,577
34.9
9,700
15,337
3,604
9,144
2,469
27.0
66
6,609
6,609
5.0
FY18 vs Est
2QE
(%)
20,671
-1
1.0
11,993
-3
8,678
2
42.0
2,473
-1
3,924
0
600
184
2,881
45
778
27.0
60
2,043
45
2,043
-6.0
Financials & Valuations (INR b)
Y/E Mar
2017 2018E 2019E
Net Sales
826.3 876.3 888.7
EBITDA
33.2
30.6
29.8
PAT
6.3
6.6
5.4
EPS (INR)
3.8
4.0
3.3
Gr. (%)
-51.5
5.1 -18.7
BV/Sh (INR)
63.2
64.8
65.7
RoE (%)
6.3
6.3
5.0
RoCE (%)
8.6
8.2
7.8
P/E (x)
22.2
21.2
26.0
P/BV (x)
1.3
1.3
1.3
Estimate change
TP change
Rating change
Quarterly Performance (Consolidated) – INR million
Y/E March
Net Sales
YoY Change (%)
Total Expenditure
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT
Tax
Rate (%)
MI and Associates
Reported PAT
Adj PAT
YoY Change (%)
1Q
24,500
16.3
13,328
11,173
45.6
2,398
4,293
416
4,899
1,248
25.5
-14
3,665
3,665
32.1
FY17
2Q
3Q
4Q
20,470 19,043 18,621
-19.1 -28.1 -30.6
10,843 12,468 12,752
9,627 6,575 5,869
47.0
34.5
31.5
2,471 2,444 2,379
4,356 4,229 3,970
516
505
732
3,316
407
253
1,167
249
22
35.2
61.2
8.6
-25
-56
-11
2,174
214
242
2,174
214
242
-42.3 -93.3 -92.1
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Dhruv Muchhal – Research Analyst
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549
Sanjay Jain – Research Analyst
(SanjayJain@MotilalOswal.com); +91 22 6129 1523