JSW Energy's Q3FY19 results (Underperformer) - Dark spread improves; utilization remains low
Q3FY19 results
- Net generation for Vijayanagar TPS for Q3FY19 was 1002MU (57% PLF), +12% yoy while Ratnagiri TPS net generation was 2.0BU (80% PLF), an increase of 12% yoy. At present, Vijayanagar TPS sells 515MW and Ratnagiri TPS sells 330MW power on merchant basis.
- Dark spread (standalone power realisation minus fuel cost) has increased to Rs1.19/unit (increase of Rs0.26/unit yoy) despite elevated international coal prices due to better realisations. As a result, standalone profit came in at Rs1.1bn in Q3FY19, 121% yoy.
- Baspa and Karcham hydro power plant’s (operating under a subsidiary), generated 0.7BU
- Baspa and Karcham reported a EBITDA of Rs1.7bn, flat yoy in Q3FY19. Barmer TPS, (operating in another SPV) has deemed PLF of 79.5% in Q3FY19 (norm. PLF of 80%; 84% in 9mFY19) and reported a EBITDA of Rs2.7bn (Rs2.2bn) in Q3FY19
- As a result, consolidated EBITDA is Rs7.4bn (Vs estimate of Rs5.9bn) and JSW reported profit of Rs1.5bn(est of Rs1.8bn).
- Note that JSW is increasing the quantum of long term supply from its power plants. JSW has tied up 316MW from Vijayanagar under long term Karcham is now fully tied up under long term PPA and Ratnagiri is expected to tie up its entire capacity on long term to its group companies (one unit supplying to MSEDCL and three units are group captive)
Key positives: Improved dark spread in 3QFY19
Key negatives: Capital expenditure planned in Electric Vehicles to Rs65bn
Impact on financials: Minor changes in earnings estimates; introduce FY21 earnings at Rs12bn
Valuation and View
Although the bilateral merchant prices have increased sharply, utilisation of merchant capacity has remained low leading to subpar earnings for merchant power plants. We believe JSW will find it challenging to operate its merchant capacity at a high PLF owing to surplus untied capacity in the market. Given the challenges in tying up power for untied capacity, we believe there is high level of uncertainty in FY20E earnings. In view of sharp decline in earnings and increased uncertainty, we reiterate our Underperformer rating with a revised target price of Rs66/share
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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