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JSW Energy reported net revenues of INR 25.4bn (+13% YoY, -12%/-15% JMFe/Cons.) led by improvement in net generation (+43% YoY) at 6.1 BUs on the back of contribution from new RE capacity additions. EBITDA/ Adj PAT came in at INR 11.1bn (+78% YoY, -22%/-16% JMFe/Cons.)/ INR 2.3bn (+24% YoY, -29%/-38% JMFe/Cons.) on account of reduction in merchant tariff due to seasonality and higher than expected other expenses. With the execution of new projects (Ind-Barath TPP, Kutehr hydropower, Renewable, Pumped hydro, Fatehgarh BESS) progressing on expected lines and company’s openness to all types of thermal opportunities, we maintain our BUY rating on the stock, with a SOTP-based TP of INR 540 (+11%, CMP INR 489), implying 11.4x FY26 blended EV/EBITDA.

Generation: Net generation during 3QFY24 stood at 6,128 MU (+43% YoY) driven by the higher thermal generation and contribution from acquired and greenfield RE capacity additions.

Financial performance: Total revenue/ EBITDA/Adj PAT increased to INR 25bn (+13% YoY)/ INR 11bn (+78% YoY)/ INR 2.3bn (+24% YoY), driven by incremental contribution from the renewable portfolio and strong thermal performance (by a buoyant merchant market).

Other financials: Finance costs during the quarter stood at INR 5.2bn. The weighted average cost of debt stood at 8.58% v/s 8.51% in 2QFY24. The consolidated Net Worth and Net Debt as on 31 Dec’23 were INR 210bn and INR 263bn respectively, resulting in a Net Debt/Equity ratio of 1.3x. Net Debt/EBITDA stood at 4.6x, with Net Debt/EBITDA (excl. CWIP) at a healthy 3.2x. Receivables in DSO terms sustained a healthy level of 69 days.

Projects Execution:

- Thermal: Unit-1 of 2x350 MW Ind-Barath synchronized on 13th Jan 24; Unit#2 is expected in 4QFY24

- Hydro: Tunnelling work at 240 MW Kutehr HEP has been completed. c.86% of barrage concreting has also been completed

- Wind: Progressive commissioning of 810 MW wind project (SECI IX) commenced with CoD received for 51 MW

- Acquired RE Portfolio (1,753 MW): Net Generation up 16% YoY resulting in EBITDA of INR 2bn (9M FY24 at Rs11bn)

Other key highlights:

Renewable market: Tariffs in solar/wind projects of SECI are increasing while module prices are reducing, indicating the maturity of the market. The number of bids in various tenders is reducing due to a lack of enough debt and equity. However, the company intends to bid more aggressively in SECI’s tenders to increase the RE capacity base. Additionally, the company is seeing an increasing number of wind bids due to RTC/ FDRE projects. However, land/ROW-related challenges remain in project execution.

Solar PV manufacturing: Given the sharp decline in module prices globally, it doesn’t see viability in setting up a green field manufacturing plant. So, a proposal for 1GW of W-CM (wafer-cell-module) awarded under PLI is put on hold.

Thermal capacities: Seeing traction in thermal projects. States are willing to sign more PPAs. The company is open to all opportunities. It did not ‘deny’ interest in Lanco Amarkantak with 2x300 MW operational and 2x660 MW under construction capacities (currently under NCLT). Recently, some media reports indicated its interest in IL&FS’s 1200 MW Cuddalore Thermal Power Station.

Pumped hydro storage: Soon to announce agreement for proposed 130 MW of PSP with a group company.

Battery Energy Storage Project: It expects PPA to sign in 4QFY24 for its 500MW/1000MWhr project.

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