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Grey and green businesses to be reorganised

JSW Energy’s (JSWEL) Board has approved the reorganisation of the company’s green and grey businesses. Its RE business (operational: 1,391MW hydro & 10MW solar; under construction: 240MW hydro & 2,218MW of solar + wind) will be housed under a new wholly-owned subsidiary – JSW Neo Energy. The thermal business (3,158MW) will continue to be part of JSWEL. Other green ventures – energy storage, green hydrogen, green ammonia – will be undertaken through JSWNEL. We estimate JSWEL’s FY24E/FY26E EBITDA at Rs43.8bn/Rs50.8bn, of which, contribution from the green business will be >62%. Though there is immense potential for capacity addition in the RE space, we would be more comfortable assigning a higher multiple to RE platform once the overall annual bidding picks up from 10GW to 25-30GW. On FY24E basis, assuming 8x EV/EBITDA for grey business, CMP implies 13x EV/EBITDA multiple for the green business, slightly lower vs global peers. We have assigned 10x FY24E EV/EBITDA to RE capacity, in line with NTPC and Tata Power. Maintain SELL

Green and grey businesses’ reorganisation approved by Board:

While RE business will be housed under new wholly-owned subsidiary, JSW Neo Energy Limited (JSWNEL), the thermal business will continue as part of JSWEL. JSWNEL will be the primary vehicle for the company’s other green ventures as well, including energy storage (hydro pumped and BESS), green hydrogen and green ammonia. JSWEL’s current operational capacity includes 3,158MW thermal, 1,391MW hydro, and 10MW solar. 2,458MW of RE capacity is under construction: 1) 2,218 MW of wind and solar projects (PPA already signed) expected to be commissioned over the next 18- 24 months; 2) 240MW Kutehr hydro project, which is expected to be commissioned in the next 36-40 months. JSWEL targets to reach 10GW by FY25 and 20GW by FY30, with the share of RE in the mix increasing from 30% currently to 85% by FY30. Reorganisation will include the following steps: 1) transfer of 100% of equity shares held by JSW Future Energy (JSWFEL) in JSW Renew Energy (Kar) and JSW Renewable Energy (Dolvi), to JSWNEL. 2) Merger of JSWFEL with JSWNEL. 3) Transfer of 100% of equity shares held by JSW Hydro Energy (JSWHEL) in JSW Energy (Kutehr) to JSWNEL. 4) Transfer of 100% of equity shares held by JSWEL in JSWHEL to JSWNEL.

Green business to contribute >62% to EBITDA in FY26E:

We estimate JSWEL’s FY24E/FY26E EBITDA at Rs43.8bn/Rs50.8bn. Of this, contribution from the green business will be >62% as commissioning of 2,218MW solar and wind projects is expected to complete by FY24, and Kutehr HEP is expected to be commissioned by FY25.

Uptick in RE auctions may uprate JSWEL’s RE business similar to global peers:

We maintain our SELL rating but increase our target price to Rs156 (earlier: Rs150), ascribing 10x FY24E EBITDA to RE business (similar to NTPC and Tata Power). Valuing JSWEL’s coal vertical at 8x, at CMP the RE vertical is being valued at 13x FY24E EV/EBITDA, which ranges at 13-16x for global and 10-11x for the listed Indian peer set. Even though the current valuation assigns the best for grey business and a high platform multiple for RE vs domestic peers, we believe that once the currently sluggish RE auctions pick up, growth in the green vertical will become more visible for the company, resulting in uprating in valuations at par with global peers.

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