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Decline in merchant sales and higher fuel cost impact profit; green growth prospects are bright

JSW Energy (JSWEL) reported consolidated revenue / EBITDA / PAT of Rs22.5bn / Rs6.5bn / Rs1.8bn (+18.7% / -21.0% / -44.6% YoY) respectively, for Q3FY23. However, adjusting for the Rs1bn (pre-tax) prior period sales during Q3FY22, PAT was lower by 27.8% YoY. The main factors impacting performance during the quarter were: 1) 71% YoY decline in merchant sales volumes to 95MU (from 323MU in Q3FY22); 2) operationalisation of 225MW solar plant and commissioning of first phase of 27MW of the SECI X project, resulting in 95MU of RE generation (vs 3MU in Q3FY22); 3) higher fuel cost (Rs3.2/unit, up 73% YoY); 4) higher interest expense due to capex and increase in interest rates. Acquisition of 700MW Ind-Barath Utkal TPP is complete (JSWEL holds 95%) and the project is likely to be operationalised in the next 24 months. Mytrah acquisition is likely to be delayed and is now expected to be complete by Q1FY24. LoA for the 500MW BESS project from SECI is a positive. Upgrade to HOLD (from Sell)

* Merchant sales declines: JSWEL’s total generation at 4,274MU in Q3FY23 was 4.9% lower YoY mainly due to 71% lower YoY merchant sales at 95MU, as merchant prices declined during the quarter while imported coal prices increased. Net generation at Vijayanagar/Ratnagiri declined 11%/8% YoY to 716MU/1,133MU, while Barmer at 1,609MU was down 2% YoY. Hydro-generation was 9% lower YoY at 721MU. Commissioning of the 225MW solar plant at Vijayanagar and the first phase of 27MW of the SECI X project over the past year helped generate 95MU of RE power during Q3FY23 (vs 3MU in H1FY22). Receivables were at Rs16.2bn while receivable days declined to 69 (from 75 at Q3FY22-end). Cash and cash equivalents stood at Rs30.3bn. Net debt was Rs98.4bn (up from Rs69.6bn at FY22-end) due to capex and weighted average cost of debt was at 8.29% (up from 7.74% in Mar’22). Over past 12 months, JSWEL took Rs17.6bn of new debt as part of its capex plans, but also repaid Rs5bn.

* Acquisition of 700MW Ind-Barath Utkal TPP complete: JSWEL completed the acquisition of 2x 350MW TPP located in Jharsuguda, Odisha, through NCLT in Dec'23. It acquired 95% stake at Rs10.5bn, the balance 5% being collectively held by the secured financial creditors. The plant is expected to be operational in the next 24 months. It may be used for polysilicon manufacturing, group captive power requirements or sold through PPAs with discoms. Due to the low acquisition cost (Rs15mn/MW) and proximity to the coal-rich belt of Mahanadi coalfields, tariff from the project is expected to be low, and may lead to higher returns for the company

* Receives LoA for 500MW BESS project from SECI: JSWEL has received LoA from SECI for a 500MW/1,000MWhr battery energy storage (BESS) project in Jan’23. For 60% of the BESS capacity, the company will receive a fixed charge from SECI at Rs1.085mn/MW/month for 12 years. The balance 40% will be managed by JSWEL, which may be contracted with other discoms or supplied to ancillary markets (may fetch better returns than selling to SECI). After 12 years the project will be transferred back to SECI. Company is expecting mid-teen equity IRRs for this project. Tariff for the end-user may differ with variation in cycles. Company expects the PPA to be signed over the next 3-4 months (18-month construction period will commence then onwards) after which it will place the EPC order.

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