Buy JSW Energy Ltd for the Target Rs. 726 by JM Financial Services Ltd
JSW Energy has total locked-in generation capacity of 30.3GW, comprising 12.9GW operational, 12.8GW under-construction across thermal and renewable, and a pipeline of 4.6GW which will come online during ensuing power deficit periods. The company also has 29.4GWh of locked-in energy storage capacity through hydro pumped storage projects of 26.4GWh and battery energy storage system (BESS) of 3.0GWh. Given the proven execution capability, disciplined capital allocation, and expanding operating margin, we estimate gradual improvement in key performance parameters; Net Debt/EBITDA (6.2x in FY25 to 4.0x in FY30), Gross block/MW (INR 46.7mn/MW in FY25 to INR 63.3mn/MW in FY30) and RoE (8% in FY25 to 16% by FY30). We maintain BUY on the stock with a revised SOTP-based TP of INR 726 ( earlier TP 571) rolling forward from Mar’27 to Sept’27, implying EV/EBITDA of 13.7x
* Foundation: JSWEL was born in 2002, benefiting from power sector reform in India beginning 1991. With a modest capacity of 2x130MW thermal power plant at Toranagallu, Vijayanagar, it has adopted a strategy that is a good blend of acquisition of under-valued cash generating assets and organic build-up of large assets with assured long-term cash flows. Exhibiting benchmark execution capabilities, it has successfully turned around various acquisitions (1,391MW Karchan and Baspa Hydro, 1,753MW Mytrah wind, 700MW Utkal thermal, 4.7GW O2 Power, 1,800 MW KSK Thermal) without any cost and time overruns.
* Green portfolio: In 2023, JSWEL reorganised its businesses into green and grey whereby the existing and upcoming RE businesses across generation, energy storage, and green hydrogen / ammonia were housed under JSW Neo Energy. True to its genre, it has built 18.5GW of RE portfolios (7.1GW operational, 11.3GW under construction) by acquiring good quality but stressed assets and, swiftly executing awarded greenfield projects.
* Fast & furious strategy: The demand for power is growing. Peak demand has touched all time high 250GW. After a decade of muted growth, the thermal power sector has made a big comeback without diluting the country’s long-term RE targets. The company has its Strategy 3.0 in place charting the course for FY30, with a stated goal to achieve 30GW power generation and 40GWh energy storage capacity by FY30, involving a capex of INR 1.3trln. It is developing 6x600MW KSK Mahanadi thermal (expansion), 1,500MW / 12,000MWh Bhavali and 1,500MW / 12,000MWh Sonebhadra pumped hydro energy storage projects and, 2 x 800MW Salboni super critical thermal power plant.
* What’s ahead: JSWEL has total locked-in generation capacity of 30.3GW, comprising 12.9GW operational, 12.8GW under-construction across thermal and renewable, and a pipeline of 4.6GW along with 29.4GWh of locked-in energy storage capacity. Over the years, it has demonstrated strong execution capabilities as evident from earlier declared strategic targets. We believe net Debt/EBITDA will improve from 6.2x in FY25 to 4x in FY30. EBITDA/MW is estimated to rise from INR 5.4mn/MW to INR 10.3mn/MW over the same period. EBITDA margin is also likely to expand from 44% in FY25 to 60% in FY30. RoE will improve meaningfully from 8% in FY25 to 16% by FY30. (Exhibit 17).
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SEBI Registration Number is INM000010361
