Buy JSW Energy Ltd for the Target Rs.620 by Motilal Oswal Financial Services Ltd
Strong 1Q amid higher-than-estimated generation
* JSW Energy’s (JSWE) 1QFY26 revenue was 6% above our estimate at INR51.4b (+79% YoY), and EBITDA stood at INR27.9b (+97% YoY), beating our estimate by 24%. The strong beat was driven by higher than estimated contributions from recently acquired assets—KSK Mahanadi (1.8 GW) and O2 Power (1.3 GW)—alongside higher generation from the fully contracted Vijayanagar coal plant.
* In 1QFY26, the company commissioned 1.9GW (1.7GW from O2 Power and 200MW under its RE platform, JSW NEO) and reiterated its FY26 capacity addition target of 3-4 GW (excluding 1.3GW O2 Power). Capex for the quarter stood at INR24b, with full-year FY26 guidance maintained at INR150- 180b. The 240MW Kutehr Hydro project is expected to be commissioned in the next few days.
* JSWE remains on track to reach 30 GW of generation and 40 GWh of storage capacity by FY30, targeting a 2.7x- 3x EBITDA increase over pro forma FY25 levels.
* We reiterate BUY with a TP of INR620/share.
Robust beat led by acquisitions and generation upside
Consolidated performance:
* JSWE’s consolidated revenue was 6% above our estimate at INR51.4b (+79% YoY). EBITDA stood at INR27.9b (+97% YoY), beating our estimate by 24%. This strong beat was driven by higher-than-estimated generation on account of KSK Mahanadi (1.8GW) and O2 Power (1.3GW) additions, RE capacity additions, and higher generation at the Vijayanagar coal plant post longterm tie-up and incremental contributions from the same.
* Incremental EBITDA of INR8.67b was from KSK Mahanadi and INR2.19b from O2 Power (consolidated since 9 Apr’25).
* Adj. PAT was 31% above our estimate at INR7.4b (+42% YoY).
Operational highlights:
* Total installed capacity stood at 12.8GW at the end of 1QFY26, up ~70% YoY, with 1.9GW added during the quarter.
* Net generation rose 71% YoY to 13.5 BUs. RE generation rose 54%YoY to 5BUs, driven by organic wind capacity additions and contribution from O2 Power
Other highlights:
* The KSK Mahanadi (1.8GW operational) plant generated 2.7BUs in 1QFY26, contributing INR8.67b to EBITDA, while the recently commissioned Utkal Unit-2 (350MW) ramped up operations during the quarter, generating 370 MUs.
* JSWE completed the acquisition of O2 Power, a 4.7GW renewable platform, on 9 Apr’25, with an operational capacity of 1,343MW as of 31 Mar’25.
* The company secured PPAs totaling 605MW during the quarter, comprising 250MW of wind and 355MW of hybrid capacity. Additionally, after the quarterend, it signed PPAs for a 350MW FDRE project and a solar (100MW) + BESS (100MWh) project.
* JSW Neo secured a USD675m ECB, backed by strong credit ratings.
* Short-term thermal sales rose 63% YoY to 1,630 MUs in 1QFY26, driven by a shift toward domestic coal-based capacities at Utkal and KSK Mahanadi.
* The company secured storage agreements for 12.5GWh during the quarter, followed by an additional 680MWh after the quarter-end, bringing the total locked-in storage capacity to 29.4GWh.
* The company has commenced trial runs for its 3,800 TPA green hydrogen project located in Vijayanagar.
Highlights of JSWE’s 1QFY26 performance
* Total installed capacity rose to 12.8 GW, reflecting a 70% YoY increase, driven by recent acquisitions and organic capacity additions.
* Net generation stood at 13.5 BUs, up 71% YoY, led by the contribution from newly acquired and operational assets.
* The 1.8 GW KSK Mahanadi plant operated at full capacity during the quarter, generating 2.7 BUs (~20% of total generation) and contributing INR8.6b to consolidated EBITDA (~28% share). The plant is showing further upside potential, with plans to complete the partially built 600MW fourth unit (currently ~45% completed). While tariffs are expected to vary annually, management remains confident that annual EBITDA will not fall below INR24b.
* Capex for 1QFY26 stood at INR24b. The company has retained its full-year capex guidance at INR150-180b.
* O2 Power has achieved an installed capacity of 1.8 GW, with plans to scale up to 4.7 GW by Jun’27. Planned capex for this expansion is estimated at INR130- 140b.
* As of 1QFY26, only 8% (974MW) of the total capacity remains untied. Of this, just 10% is linked to imported coal, with the remainder based on domestic coal.
* Notably, all 13 GW of under-construction capacity has been fully tied up under long-term PPAs, enhancing forward earnings stability.
* The company has reiterated its FY26 commissioning target of 3-4 GW (excluding the 1.3 GW of O2 Power acquired during the year).
* A 5 GWh/year battery assembly plant is under development in Pune, with an initial capex of INR1.65-1.8b. Trial runs are expected to commence by the end of 2QFY26. Battery cells will be imported from China for initial operations.
* A 3,800 TPA green hydrogen plant is expected to be commissioned in 2QFY26, marking JSWE’s foray into clean fuels and energy diversification.
Valuation and view
* The valuation of JSWE is based on SoTP:
* Thermal is valued at 8.5x FY27E EBITDA and renewable energy at 12x FY27E EBITDA (FY28E EBITDA discounted by one year).
* Hydro is at 2x FY27E book value and green hydrogen equity at a 2x multiple.
* Additionally, the company's 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 INR620/share.
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