MOSL: JSW ENERGY (Sell)- Operationally weak-lower interest boosts PAT growth; Roll forward to FY20E

JSW Energy: Operationally weak; lower interest boosts PAT growth; Roll forward to FY20E; Maintain Sell

(JSW IN, Mkt Cap USD2.2b, CMP INR83, TP INR54, 37% Downside, Sell)

JSW Energy’s (JSWE) 3QFY18 EBITDA declined 11% YoY to INR5.8b (below our estimate of INR6.9b) on a stronger base in hydro assets and lower recovery at Rajwest, partly offset by a better performance in standalone operations on higher generation and favorable fuel cost. Interest cost fell ~19% YoY to INR3.4b on refinancing and strong FCF generation. Other income rose 74% YoY to INR879m on interest income from advances to JPVL and JSPL. PAT increased YoY from INR214m to INR469m (est. of INR650m) on lower interest cost and higher other income.

• Consolidated generation increased 6.5% YoY to 4.9BU, driven by ~25% YoY generation increase at Ratnagiri (shutdown impact in the base quarter).
• Interest cost declined ~120bp YoY/~30bp QoQ to ~9%, led by refinancing of loans. Gross debt reduced by ~INR25b in 9MFY18 on operating cash flows and a reduction in debtor days (26 days w.r.t 4QFY17).
• Against advance of ~INR10b to JPVL, it has adjusted INR2.4b from payments to be made to JPVL. JSWE is in discussion with banks for the recovery of the balance.
• Operating cost (ex-fuel) declined ~2% YoY, despite higher generation, on various efficiency measures.