JSW Energy’s Q3 boosted by jump in short-term power tariffs

As such, higher hydropower sales and merchant power sales boosted revenue and profitability. In addition, average merchant power rates increased by up to 48% in the third quarter, aiding growth. Result: JSW Energy’s operating revenue up nearly 18% 1893.5 crores. Merchant receipts were good and cost of coal remained as the company used low cost coal inventories. With this, earnings before interest, tax, depreciation and amortization (Ebitda) increased by 35%. 882 crores.

net profit of the company 324 crores, more than expected. For example, HDFC Securities Ltd’s estimates projected a net profit as: 172 crore, while Nirmal Bang Institutional Equities had estimated 174.7 crores.

Investor confidence remains high for JSW Energy as the company continues its aggressive expansion led by the renewable segment. The company plans to operate by 10GW (giga watt) capacity by FY25 and 20GW by renewable-led expansion by FY30. It had a capacity of 4.6GW at the end of FY21

The creation of 2.5GW renewable capacity is progressing at a rapid pace. JSW said that for the SECI IX & X 1.26 GW wind project, long-term power purchase agreements have been signed and phase-wise commissioning will commence from Q1FY23. Out of 958MW earmarked for captive consumption at JSW Steel, 225MW will be commissioned in the March quarter itself. A hydroelectric project is also progressing well and will be commissioned in FY25. The company has also signed a letter of intent with the Government of Rajasthan for 1GW hydro pump storage.

Meanwhile, the company’s strong balance sheet augurs well. Its net debt to EBITDA at the end of Q3 FY22 stood at 1.74 times in the previous 12 months and net debt to equity at 0.37 times. This marks an improvement in Ebitda to 2.6 times net debt at the end of FY2011. This is despite ongoing expansion projects, which is commendable. Additionally, the cost of credit is also coming down, thereby reducing the interest cost. The weighted average cost of credit, which stood at 8.21% at the end of FY2011, has now come down to 7.82%.

Cash and cash equivalents of JSW Energy 2,195 crore puts it well to explore any inorganic opportunities. The company is also making progress with its restructuring plans for its green and brown businesses. It plans to set up renewable energy business under ‘JSW Neo Energy Limited’. The thermal business (3,158MW) will continue to be part of JSW Energy Limited.

To be sure, even if Q3 impacts, analysts don’t expect similar performance in subsequent quarters. For one, higher coal costs will eventually pinch. Secondly, merchant power tariff is also falling from peak.

Note that the stock of JSW Energy is trading at over 50 times FY22 earnings estimates. Rupesh Sankhe, analyst at Elara Capital, believes the core business valuation is up. Investors are offering higher valuations based on its plans on green hydrogen potential and current expansion. The stock has risen fourfold in the past year, which may capture a fair bit of optimism.