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Robust 2Q outlook; commissioning on track

* JSW Energy (JSWE)’s 1QFY27 revenue was in line at INR52b, while EBITDA of INR28.7b exceeded our estimate by 13%. APAT was INR4.7b, 89% above our est.

* We downgrade the stock to Neutral as:

1) The stock price has rallied 17% in the last four months, and valuation comfort has reduced as it is trading at 12x FY28E EV/EBITDA

2) we cut our FY28E EBITDA by 9%, primarily reflecting a slower renewable commissioning pace (~4GW) in FY28 than previously assumed. We continue to view JSWE positively due to its robust earnings growth trajectory, strong capacity expansion plan (from 14.5GW currently to 30GW by 2030), and superior execution capabilities compared to peers. However, our revised TP of INR550 implies a 2% downside, prompting us to downgrade the stock to Neutral. While the company's long-term growth outlook remains compelling, we believe the current valuation adequately reflects these strengths.

* Key things we liked:

1) Power demand rebounded strongly, with 1QFY27 growth of 8.5% YoY,

2) Renewable capacity additions remained on track, with 1.1GW commissioned in FY27YTD, supporting management's 3GW FY27 addition guidance,

3) Despite lower PLFs of 40%/71% for hydro/thermal (vs. 66%/76% in 1QFY26) due to weaker hydrology, a 17-day transmission evacuation outage at KSK, and a planned outage at the Ratnagiri plant, operational performance remained resilient

4) successfully executed INR101.5b of fund-raising initiatives (INR30b preferential allotment, INR31.5b via a partial stake sale, and INR40b raised via a QIP), which helped strengthen the balance sheet and brought leverage under control.

* Key monitorables:

1) The pace of RE commissioning and availability of firm transmission connectivity

2) The progress on the 600MW Unit 4 at KSK Mahanadi, targeted for commissioning in FY28

3) The potential impact of the renewable curtailment, as ~12–14% of the company's solar capacity experienced curtailment during the quarter.

Valuation and view

* Our valuation of JSWE is based on SoTP:

* Thermal is valued at 9.5x FY28 EBITDA, and renewable energy at 12.5x FY28E EBITDA.

* Hydro is at 2x FY28E book value, and green hydrogen equity is at 2x.

* 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 INR550.

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