JSW Energy's Q3FY20 results (Neutral) - In advanced stage to close GMR Kamalanga Deal

Q3FY20 results

• Vijayanagar TPS operated at a PLF of 45% in Q3FY20 (vs 57% in Q3FY19) while Ratnagiri TPS PLF was 72% (vs 80% in Q3FY19). The PLF was lower due to weak demand of electricity in Q3FY20 leading to 52% decline in short term sales (at 541MU vs 1.12BU in Q3FY19). Net generation from Baspa and Karcham hydro power plant’s (operating under a subsidiary), in Q3FY20 was 730MU (vs 669MU in Q3FY19).
• EBITDA at standalone entity came in at Rs2.1bn (vs Rs3.0bn in Q3FY19 and our estimate of Rs2.8bn) on account of low PLF in Vijayanagar and Ratnagiri. Baspa and Karcham (operating under a SPV) reported EBITDA of Rs1.7bn (flat yoy) while Barmer TPS, reported a EBITDA growth of 2% yoy at Rs2.7bn in Q3FY20.
• The consolidated adjusted EBITDA for the quarter came in at Rs6.4bn (vs estimate of Rs8.2bn; Q3FY19 EBITDA of Rs7.4bn). As a result, the adjusted PAT was Rs1.3bn (below our est of Rs2.0bn). The miss is primarily led by low off take in Vijaynagar and Ratnagiri.
• During the quarter, JSW entered into debt resolution agreement with JPVL for outstanding debt of Rs7.5bn. Reported PAT came in at Rs3.9bn due to write back of provision for amount payable related to Karcham acquisition and write off of deferred tax liability (new taxation regime).
• JSW Energy proposal to acquire 700MW Ind-Barath coal based power plant is awaiting NCLT approvals and is expected to be completed by Q2FY21E. GMR Kamalanga deal is in advanced stages and is expected to be finalised within a month.

Key positives: Inorganic opportunities.

Key negatives: Delay in Ind-Bharat acquisition; Low PLF of Vijayanagar and Ratnagiri plants; 

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. JSW is utilising its strong balance sheet to acquire stressed assets. It is in advanced stages to acquire Ind Bharat Power plants and GMR Kamalanga power plant which can potentially add significant value. However, there is uncertainty on the amount to be paid for acquisition of GMR deal. As a result we maintain Neutral rating on the stock with a target price of Rs69/share.