MOSL: JSW ENERGY (Neutral)-Lower hydro generation drives operating weakness

JSW Energy: Lower hydro generation drives operating weakness; But saving in interest cost drives PAT growth; Maintain Neutral

(JSW IN, Mkt Cap USD1.6b, CMP INR67, TP INR75, 12% Upside, Neutral)

JSW Energy's (JSWE) 1QFY19 EBITDA was down 11% YoY to INR7.8b (est. INR7.1b) on lower hydro generation. PAT however increased 5% YoY to INR2.3b (est. ~INR1.5b) on lower interest cost and tax rate, partly offset by lower other income and higher depreciation. Net debt (ex-acceptances) was unchanged QoQ.

• Generation declined ~5% YoY (+40% QoQ) to 6.1BU, driven by ~26% YoY decline in hydro generation due to unfavorable hydrology. Water flow is expected to be low this year due to weather, which will impact generation at its hydro assets. Generation at Ratnagiri increased ~31% YoY (~41% QoQ) to ~2BU, on higher merchant sales.
• Fuel cost in standalone (S/A) increased ~2% QoQ to INR3.5/kWh on higher imported coal prices and currency depreciation.
• S/A EBITDA declined ~3% YoY to INR1.8b, as 9% higher generation (led by Ratnagiri), and 7% increase in realization (to INR4.38/kWh) was offset by higher fuel cost. Rajwest EBITDA increased 17% YoY to INR2.6b, while hydro EBITDA declined 32% YoY to ~INR3.4b.
• Ratnagiri's U2 of 300MW was converted to group captive. Utilization will increase over next 18-24months.