The shares of JSW Energy, a leading power generation company, have been double upgraded to 'Buy' rating by Antique stock broking. The company, which has power assets located at Karnataka, Maharashtra, Nandyal and Salboni, is the holding company for the JSW group's power business and it has a joint venture engaged in mining activities and an associate company engaged in manufacturing of turbines.
The reason for a double upgrade to 'Buy' as sighted by Antique stock broking is that JSW Energy is on track to commission 10 GW by FY25 and 20 GW by FY30, which will yield Rs 7,500 crore to Rs 8,000 crore in earnings before interest, tax, depreciation and amortisation (EBITDA) by the end of FY25. The 10 GW split is 38 percent thermal, 14 percent hydro and 48 percent wind and solar.
Furthermore, the company has an early mover advantage in energy storage by securing a resource of 10.8 GW in pumped hydro storage, while India
has 96 GW in potential resources. In addition, it has received a Letter of Intent for 300 MW x 8 hours from Karnataka and plans to execute the project in 36 months. These projects have 40-year power purchase agreements. It is noteworthy that there are not many companies within the utility space that are making rapid strides in energy storage. With renewed focus on renewable energy and storage, the company is considered the best proxy for energy transition.
JSW Energy's growth is also led via the inorganic route. It acquired Mytrah Energy with a portfolio of 1.75 GW of renewable energy assets. Since its acquisition, JSW Energy worked on improving Mytrah Energy's generation by enhancing machine availability, restoration of wind turbine generators and optimization of operations and maintenance. This resulted in Mytrah's run-rate EBITDA on track to reach Rs 1,650 crore.
Further, green hydrogen and solar module manufacturing will add to the existing growth. JSW Energy has contracted India's largest commercial-scale Green H2 of 3,800 TPA, whose off-take agreement is for seven years, with a cost-plus structure that assures mid-teen return on equity. The plant will be commissioned in 18 to 24 months. Similarly, JSW is allocated 1 GW of wafer, cell and module plant under the Production linked Incentive scheme. The company aims to set up the plant, which will entail a capex of Rs 1,600 crore to be operational by April 2025.
JSW Energy's return on equity remained subdued due to under leveraging of the balance sheet. The company is generating a cash flow of Rs 2,500 crore and with leverage, it aims at Rs 75,000 crore in capex till FY30.
In an interaction with CNBC-TV18 in May, Prashant Jain, Joint MD & CEO at JSW Energy had said that the subdued demand in April and May was a result of sporadic rains across the country. However, he mentioned two noteworthy trends going forward. First, international thermal coal prices have fallen resulting in more attractive fuel prices for the current quarter. Secondly, merchant prices are on the rise, benefiting JSW Energy's open capacity.
The power producer saw 69 percent year-on-year decline in net profit for the fourth quarter ending March 31, 2023, while revenue improved to Rs 2,670 crore compared with Rs 2,440 crore in the corresponding period of the preceding fiscal year.
The stock has built momentum by gaining over 8 percent since the start of this week. At 11 am on June 22, the scrip is trading at Rs 282 per share, rising 3 percent. Antique stock broking has assigned a target price of Rs 316 per share.
(Edited by : C H Unnikrishnan)
