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EBITDA miss but capacity ramp-up plans on track

* JSW Energy (JSWE) reported 2QFY25 EBITDA of INR16.8b, below our estimate of INR19.3b. While net generation was up 14% YoY, EBITDA was negatively affected by lower merchant spreads and a one-time tariff impact from the hydro business. Adjusted 2Q PAT was 20% above our estimate at INR8.5b (est. INR7b, +19% YoY), mainly due to higher other income and a lower tax rate.

* The management maintained its full-year capex guidance of INR150b and highlighted that locked-in capacity stands at 19.2GW and only 3.5GW capacity is awaiting PPA. JSWE also highlighted that transmission and landrelated visibility has been achieved for 80% of the pipeline, which has secured PPAs. JSWE remains confident of achieving timely completion of the RE project pipeline.

* Considering its strong operational performance and market position, we reiterate our BUY rating on the stock with a TP of INR900, valuing JSWE's core business at 15x Dec’26E EBITDA.

EBITDA miss amid lower merchant spreads, one-time costs

Consolidated:

* JSWE reported consolidated 2Q revenue at INR32b (+5% YoY), which was 8% below our estimate of INR35b.

* Adjusted 2Q PAT was 20% above our estimate at INR8.5b (est. INR7b, +19% YoY) mainly due to higher other income and a lower tax rate.

* Consolidated EBITDA margin stood at 52% with EBITDA of INR16.8b, which was 13% lower than our est. of INR19.3b (-1% YoY).

* Receivables on DSO basis improved to 70 days.

* The company's project pipeline (entirely RE) stands at 5.8GW, with PPA yet to be signed for 3.5GW.

* Standalone:

* JSWE reported standalone 2Q PAT of INR2.8b (+50% YoY, 13%QoQ).

* Revenue dipped 15% YoY/8% QoQ to INR9.6b.

* EBITDA margin stood at 25% with EBITDA of INR2.4b (- 37% YoY and 33% QoQ).

* Operational:

* The company reported a 14% YoY increase in net generation to 9.8BUs. This growth was primarily driven by enhanced hydro generation, the addition of new wind capacity, and an increase in thermal generation.

* RE generation increased by 14% YoY to 5Bus, largely aided by wind and hydro generation, which rose 37% and 5%, respectively.

* Additionally, long-term PPA generation increased by 9% YoY.

* The company commissioned 204MW of wind capacity, further expanding its RE portfolio.

Key highlights from the management commentary

* JSWE now boasts a locked-in capacity of 19.2GW after winning RE bids of 3.7GW in 2QFY25.

* New PPAs of 3.8GW capacity were signed in 2Q, representing two-thirds of project wins in CY24.

* Construction of its 1GWh battery project remains on track for completion by Jun’25.

* Net generation in 2Q was up 14% YoY, with long-term PPA generation rising 9% YoY.

* Underlying EBITDA was up 4% YoY despite lower short-term sales.

* Sustainable net debt-to-EBITDA ratio (excluding CWIP) stood at 2.2x as of Sep’24 end.

* The target to reach 10GW in operational capacity was revised to FY25 end (from end CY24 earlier).

* 3.5GW of capacity, which is in the pipeline, is awaiting PPA; of this, ~ 1.3GW is awaiting PPA from JSW group entities, which are likely to be awarded by FY25 end.

* 350MW Utkal plant has stabilized now and generated 467m units in 2QFY25.

* EBITDA (excluding other income) was down 12% YoY, impacted by lower merchant spreads as peak power demand waned amid seasonality.

Valuation and view

* We value JSWE's core business at 15x Dec’26E EBITDA, reflecting its strong operational performance and market position (FY27 EBITDA discounted for three months at 9%).

* The stake in JSW Steel is valued at a 25% discount to the current market price, acknowledging the strategic significance of this holding while incorporating a conservative valuation approach.

* By aggregating the values from these different components, the total equity value of JSWE was determined, leading to a TP of INR900/share.

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