MOSL: JSW ENERGY (Buy)-CERC approves capital cost of Karcham Wangtoo-At ~INR65b, capital cost is lower than our estimate

​JSW Energy: CERC approves capital cost of Karcham Wangtoo; At ~INR65b, capital cost is lower than our estimate of ~INR70b

(JSW IN, Mkt Cap USD1.6b, CMP INR64, TP INR73, 14% Upside, Buy)

CERC approves Karcham Wangtoo project cost at ~INR65b

In its order dated March 30, 2017, CERC has approved JSW Energy’s Karcham Wangtoo hydropower plant’s project cost at ~INR65b for FY17. The plant’s capacity was maintained at 1,000MW, with 10% overload against the company’s claim of 1,091MW capacity and 10% overload (1,200MW). The CERC has disallowed the capex pertaining to the capacity that was disallowed (91MW). Resultantly, the approved capital cost is lower than our estimate of ~INR70b.

Likelihood of 200MW Punjab PPA improves

Karcham Wangtoo has PPAs for 704MW with Haryana (200MW), UP (200MW), Punjab (200MW) and Rajasthan (104MW). However, only 504MW are effective (under provisional tariff), as Punjab has not been sourcing power, pending the approval of capital cost (according to the management). The likelihood of the 200MW Punjab PPA has, therefore, improved. Punjab was a party to the tariff hearing of Karcham Wangtoo, which indicates its interest. In any case, where Punjab does not honor the PPA, we believe at an approved tariff of less than ~INR3.5/kWh, the project is attractive for other DISCOMs (Unlike coal-based projects that are exposed to coal price increase, hydro projects have a declining tariff structure. Hydropower also aids in RE integration). We were already building increase in Karcham Wangtoo’s PPA capacity from 504MW to 704MW from FY18.