JSW Energy's Q2FY20 results (Neutral) - Inorganic opportunities bodes well
Q2FY20 results
- PLF for Vijayanagar TPS for Q2FY20 was 40% yoy (vs 52% in Q2FY19) while Ratnagiri TPS PLF was 74% (vs 64% in Q2FY19). Vijayanagar PLF remained low despite 300MW PPA with Telangana (July 2019 to March 2020) due to low demand in Q2. Baspa and Karcham hydro power plant’s (operating under a subsidiary), generated 2.9BU in Q2FY20 (vs 2.6BU in Q2FY19)
- Consequently, standalone Company (operating Vijayanagar and Ratnagiri) adjusted EBITDA came in at Rs2bn (vs Rs1.7bn) in Q2FY20. Baspa and Karcham (operating under a SPV) reported EBITDA of Rs5.2bn, 7% decline yoy while Barmer TPS, reported a EBITDA of Rs2.7bn in Q2FY20 (vs Rs2.2bn in Q2FY19)
- As a result, consolidated adjusted EBITDA came in at Rs9.4bn (Vs estimate of Rs10.5bn; Q2FY19 EBITDA of Rs8.6bn) and JSW reported profit of Rs3.5bn(est of Rs4.4bn). The miss is primarily led by low off take under Telangana PPA from Vijaynagar
- JSW Energy had received a LOA for medium term contract to supply of 290MW at a rate of Rs4.41/unit. The PPA is yet to be signed.
- Recently, JSW Energy proposal to acquire 700MW under construction Ind-Barath coal based power plant has been approved by committee of creditors and is awaiting NCLT approval. In addition, it has also entered into exclusive discussions with GMR Infra for acquisition of operational 1050 MW coal based power plant.
Key positives: Inorganic opportunities; LOI for 400MW at a rate of Rs4.41/unit
Key negatives: Low PLF of Vijayanagar power plant;
Impact on financials: Maintain our earnings estimates for FY20E/FY21E
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 FY20E and FY21E based on improving demand and short/medium term PPAs. Moreover, JSW is poised to acquire Ind Bharat Power plants and is negotiating for GMR Kamalanga power plant which can add significant value to the company if acquired at attractive valuation. However, the stock is trading at expensive valuation of 14x FY20E earnings, as a result we maintain Neutral rating on the stock.
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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