JSW Energy Rating- Buy - Merchant power sales boost Q1

JSW Energy Rating: Buy | Merchant power sales boost Q1

Jsw Energy (JSWE) reported strong Q1FY23 results with 135% y-o-y profit growth. Incremental Ebitda from merchant power sales stood at Rs 2.7 bn vs Rs 0.2 bn in Q1FY22. Renewable Energy (RE) capacity ramp-up is on track. We initiated with a Buy on JSWE on 18 July, 2022, based on higher RE share in capacity ahead and cash flow benefits from pockets of higher merchant prices. Buy.

Acceleration in RE capacity addition: Management on its call highlighted that it is on track to meet its 20-GW capacity target by FY30E and is hopeful of advancing its FY25E 10-GW target vs on-ground capacity of 4.8 GW. Our estimates factor in 6.8 GW by FY25E, of which 3.6 GW is RE. Higher cash flows from the merchant power sales are helping faster capacity addition. SECI-X, the 450 MW power plant supposed to be commissioned at end of Q2FY23, is now expected to be commissioned by July’23. Recently, the company commissioned a captive solar power plant of 225MW, having a 25-year PPA.

We raise our FY23E-25E EPS by 1-5%, factoring in Q1. We expect EPS to see a CAGR of 14% over FY22-25E, on the back of projects being commissioned. We value the stock at 14x EV/Ebitda Sept’24E to arrive at PT of Rs 315 (vs Rs 310). Key risks include project delays and aggressive bidding.