JSW Energy's Q1FY20 results (Neutral) - Uncertainty on medium term PPA of 300MW
Q1FY20 results
- Standalone Company (operating Vijayanagar and Ratnagiri) adjusted EBITDA came in at Rs2.5bn (vs Rs1.8bn) in Q1FY20. Baspa and Karcham (operating under a SPV) reported EBITDA of Rs3.3bn, flat yoy while Barmer TPS, reported a EBITDA of Rs2.5bn (vs Rs2.7bn in Q1FY19) in Q1FY20. As a result, consolidated adjusted EBITDA came in at Rs8bn (Vs estimate of Rs9.5bn; Q1FY19 EBITDA of Rs7.6bn) and JSW reported profit of Rs2.8bn(est of Rs3.7bn). EBITDA and PAT has been adjusted for sharing savings of Rs480m pertaining to past tariff period with the consumers for Karcham power plant.
- PLF for Vijayanagar TPS for Q1FY20 was 38% yoy (vs 55% in Q1FY19) while Ratnagiri TPS PLF was 81% (vs 83% in Q1FY19). At present, Vijayanagar TPS sells ~515MW and Ratnagiri TPS sells ~330MW power on merchant basis. Baspa and Karcham hydro power plant’s (operating under a subsidiary), generated 1.4BU in Q1FY19 (vs 1.4BU)
- JSW Energy has tied up for power with Telangana for 300MW at a rate of Rs5.48/unit from July 2019 to March 2020. Note that the supply has commenced under this contract.
- Long term power purchase agreement has increased from 65% in FY17 to 80.4% at end of FY19.
- JSW Energy had won a medium term contract to supply 400MW at a rate of Rs4.41/unit. Medium term contract is yet to conclude as the aggregator is still in process of finalising demand from states.
Key positives: Start of power supply under short term agreement with Telangana from Vijayanagar power plant
Key negatives: Low PLF of Vijayanagar power plant; Uncertainty on 300MW medium term PPA contract
Impact on financials: Downgrade our earnings estimates by 20%/18% by FY20E/FY21E as we account for lower PLF for vijayanagar power plant
Valuation and View
JSW has increased proportion of long term and medium term power purchase portfolio in last 24 months. We expect utilization of merchant capacity to improve in FY20 and FY21E based on improving demand supply situations. Moreover, shelving of electric vehicle alleviates concern regarding capital allocation. In addition, low leverage will help JSW in acquiring stressed assets at attractive valuations. However, the stock is trading at expensive valuation of 13x FY20E earnings, therefore, we maintain Neutral
JSW Energy is primarily engaged in the business of generation of power, operation and maintenance of power plants, trading in power and mining related activities.
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