MOSL: JSW ENERGY (Sell)-In-line-sharp reduction in net debt and interest cost

​JSW Energy: In-line; sharp reduction in net debt and interest cost

(JSW IN, Mkt Cap USD2.2b, CMP INR85, TP INR51, 40% Downside, Sell)

• Merchant prices higher, but coal prices also increasing; Maintain Sell
• JSW Energy's (JSWE) 2QFY18 EBITDA declined 8% YoY to INR8.8b (in-line). PAT was up 37% YoY to INR2.9b due to certain one-offs in other income (+230% YoY to INR1.7b). Standalone EBITDA increased ~23% YoY (to INR2b) due to higher realization and low-cost imported coal inventory. However, it was more than offset by weakness at the Barmer power plant. Other key highlights:
• Impressive reduction in net debt of INR10b QoQ to ~INR127b on receivables and some recovery from JPVL (INR1.5b of INR10b). Balance sheet at 1.13x D:E is very strong.
• Reduced interest cost by 72bp QoQ/104bp YoY to 9.3%.
• It has applied for long-term PPA with the regulator of Haryana and Punjab for open capacity of 376MW at the Karcham Wangtoo plant. Our estimates do not change materially, as our merchant price estimate is similar to the PPA rates.
• JSWE will set-up a 36MW captive power plant for JSW Cement at a capex of INR1.6b over the next two years. Tariff will be on a regulated structure.
• On the electric vehicle venture, it has signed an MoU with the Gujarat state to set-up manufacturing capacity. It is in process of developing partnerships, product and technology strategy, and hiring talent.