Why you should make a profit on JSW Energy stock


But for the recent drop, electricity stocks have been on a roll in recent months thanks to the pick-up in economic activity and the accompanying rise in electricity consumption. The sector has also attracted a lot of attention with many leading players presenting ambitious plans to expand their renewable energy capacities significantly. Among these is JSW Energy, one of the largest private sector utilities in the country.

Despite the 21% drop since mid-October, in line with the broader market correction, JSW Energy stock is up over 700% from 39 in May 2020. The company’s shift in focus towards renewable energies is a step in the right direction. direction. Thanks to the growing inclination towards clean energy globally and also in India – where demand is expected to be robust thanks to lower tariffs than before and renewable energy purchase obligations by many states – there are many positive factors for green energy. However, a substantial contribution from this (wind and solar) to the total capacity of JSW Energy is still many years away.

For JSW Energy, buyer certainty for the majority of its existing power generation, regulated electricity rates that pass through cost increases, and significantly reduced leverage are some of the key business benefits. However, after a sharp rise, the stock appears to be more than adequately priced in all positive aspects. Investors can therefore consider making profits on the popular JSW Energy stock.

About business

JSW Energy, a largely thermal power producer, is also involved in the transmission and trading of electricity. The company’s current power generation capacity of 4.6 GW (gigawatts) includes 3.16 GW of thermal power, 1.39 GW of hydropower and roughly 10 MW (megawatts) of solar capacity. Today, 86 percent of the company’s total electrical capacity is bound by long-term power purchase agreements or PPAs with its customers with a tariff structure that allows for the recovery of both fixed and variable costs ( almost full pass-through of fuel and currency costs) for power sold. Fixed capacity charges must be paid by the purchaser, such as a utility utility, even if the planned electricity is not purchased. This provides revenue visibility to a large extent. For example, electricity from the company’s 1,080 MW Barmer plant is sold to the Rajasthan distribution utility at cost plus tariffs set by the Rajasthan Electricity Regulatory Commission. Electricity from the Karcham Wangtoo and Baspa-II hydropower projects is also sold to state power plants at tariffs that allow full recovery of fixed costs plus output. This provides long term visibility of revenue.

Apart from this, JSW Energy has also signed long-term PPAs for 90% of the renewable energy capacity currently under construction of 2.5 GW. Of this total, 2.2 GW of wind and solar projects are expected to be commissioned within the next 18 to 24 months. Driven by renewables, JSW Energy plans to expand its current capacity from 4.6 GW to 10 GW by FY25 and 20 GW by FY30. Recently, the company’s board of directors approved the reorganization of the company into renewable and thermal activities. The first, which includes production, energy storage and green hydrogen, is to be placed under a wholly-owned subsidiary, JSW Neo Energy, while thermal activity will continue under the existing company. This move is expected to facilitate fundraising for the green business and potentially unlock value for investors in the future.

The company’s net debt-to-equity ratio of just 0.41 times in September 2021, down from 0.59 times a year ago, gives it some leeway to take on debt to fund its planned expansions.


Unattractive valuations

Leaving aside the positives of doing business, stock valuations call for caution. At 321 yen per share, the stock slashed its 23 year profit by 43 times. That’s well over its 3-year average price / earnings multiple of about 15 times. The security is also valued at a high price in terms of enterprise value relative to EBITDA. It is trading at a forward EV / EBITDA multiple of 18.5 times, well above its historical average of 7.7 times. This implies that many of the positive elements of the foray into renewables are already factored into the assessments. JSW Energy stock also looks expensive compared to Tata Power stock which trades at a forward P / E multiple of 30 and an EV / EBITDA multiple of 12.5 (multiples for both companies are based on Bloomberg Consensus Estimates).

Financial performance

Impacted by the transition to working conditions with some of its existing long-term customers and a decrease in electricity consumption, JSW Energy reported a 16.3% (year-over-year) decrease in its revenues at 6,922 crore in fiscal year 21. Under this agreement, the coal is supplied by the customer for power generation in exchange for works costs. As a result, revenues and fuel costs were lower than they were before. EBITDA fell about 2% to 2,907 crore yen and profit before taxes and exceptional items (PBT) increased 5.5% to 1,081 crore yen from a year ago. For the September 2021 quarter, JSW Energy reported 7.7% year-on-year revenue growth to 2,087 crore, supported by an increase in near-term sales. While EBITDA was almost flat at 929 crore, the rise in other income helped PBT grow 24.3% to 604 crore during the quarter.

Between FY18 and FY20 (normal year before Covid), the company’s revenue increased by 1.4% to 8,273 crore and EBITDA by 3.5% to ₹ 2,957 crore. Helped by lower interest charges, PBT rose 62.5% to 1,025 crore. The downward trend in O&M costs, the growing share of long-term electricity sales and declining sales to traders, as well as the reduction in net debt in recent years have served the company well. ‘business.


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