Buy JSW Energy Ltd for the Target Rs. 657 by Motilal Oswal Financial Services Ltd
Unlocking new growth avenues
* We attended JSW Energy’s (JSWE) plant visit at Vijaynagar on 7-8th Jan’26, in which the company showcased its green hydrogen and floating solar plants.
* The 5,000 m3 /hour green hydrogen plant was commissioned in Nov’25 for captive consumption of JSW Group’s steel plant, which is located at an adjacent site. Green hydrogen’s economics remain challenging vs. conventional fuels, and current costs continue to hover around USD3.5-4/Kg vs. the USD 2-2.5/Kg level required to achieve mass-scale commercialization.
* The floating solar plant with a capacity of 20 MW was commissioned in Sep’25 and is a novel concept, which eliminates land acquisition requirement, provides natural cooling (thus boosting generation by slowing down module degradation), though IRRs are broadly similar to ground-mounted solar plants.
* JSWE has nearly doubled its operational installed capacity from 7.2GW in FY24 end to 13.2GW as of 2QFY26, underscoring strong execution capabilities. The reduction in merchant exposure to ~5% of the installed base significantly enhances its cash flow stability.
* With a project pipeline of 17.2GW, of which ~74% is already secured under longterm PPAs, the company remains on track to achieve its targeted generation capacity of 30GW by FY30. The company also has a 29.4 GWh of locked-in energy storage capacity with the aim of reaching 40 GWh of energy storage capacity by FY30.
* Driven by a strong, PPA-backed renewable pipeline, we build in EBITDA and PAT CAGR of 49% and 31%, respectively, over FY25-28E.
* We have a BUY rating on JSWE with a TP of INR657 (34% upside).
Commissions pilot green hydrogen project in Vijaynagar
* Plant snapshot: JSWE has commissioned a 5,000m3 /hour (4 electrolyzers x 1250m3 capacity) green hydrogen plant in Nov’25. It is based on pressurized alkaline electrolyzer technology. Electrolyzers were supplied by Peric (60%+ global market share) and the plant is estimated to have a 20- year life.
* Power requirement: Captive power consumption for the plant is 25MW and is sourced via a combination of solar and wind capacity.
* Process chemistry: The plant aims to split hydrogen and oxygen from a water molecule. The process uses high-purity water + KOH solution. Once the gases (Hydrogen and Oxygen) are separated, recycled KOH is sent back to the electrolyzer.
* Unit economics: Presently green hydrogen production cost is INR3.5-4/kg. Power cost makes up 80-90% of operating expenses. GH cost can meaningfully reduce to the targeted INR2-2.5/kg level if power cost reduces to INR1.8/unit.
* Capex: Entire capex (excl. power capacity capex) was INR1,750m, with electrolyzer forming 45% of the capex.
* Returns: JSWE operates this plant on a cost-plus basis for JSW Steel and earns mid-teen RoE.
* Alignment with JSW Steel: The plan to manufacture green hydrogen aligns with the group company JSW Steel’s plan to manufacture green steel and raise steel plant capacity to 25 MMT.
Novel floating solar plant commissioned in Sep’25
* Project snapshot: It is a 20MW floating solar plant located in a dam area of 450 acres; module area ~70 acres. Inter-float spacing is minimal with each float connected to the other. The tilt angle is 5 degrees. The float is anchored underwater using a mooring system.
* Timeline: Project was conceptualized in 2022 and was commissioned in Sep’25. EPC was done by Sterling & Wilson.
* Project economics: Floating solar plant’s construction cost is 10% higher per MW than that of ground-mounted, and O&M is also costlier. However, there is no land requirement and it can coexist with hydro projects.
* Typically, such plants enjoy higher generation with lower module degradation due to the effect of natural cooling. Overall IRR is broadly similar to the groundmounted plant.
* JSWE continues to explore new avenues for deployment of additional floating solar module capacity
Valuation and view
* The valuation of JSWE is based on SoTP:
* Thermal is valued at 9x Dec’27E EBITDA, and RE at 12x FY28E EBITDA.
* Hydro is at 2x Dec’27E book value, and green hydrogen equity is at a 2x multiple.
* Additionally, JSWE'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 INR657.
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