Hydro benefit unlikely for JSW Energy

Improved realisations, signing of PPAs would be key

JSW Energy had a net profit of Rs 217 crore for the September quarter, largely helped by the Rs 9,200 crore of hydropower acquisitions it made roughly a year before.

Things could be changing, though, with merchant rates remaining subdued and the clock ticking in terms of long-term agreements for untied power capacity. The December quarter, analysts say, will be crucial for the company in terms of getting its Karnataka power purchase agreement (PPA) in place and the fact that the hydro benefit might phase out in the second half of the financial year.

The September quarter net profit was 59 per cent less than the Rs 534 crore in the same period a year before. In its results statement to BSE, the company said the decrease in turnover was primarily on account of lower generation and realisation at the Vijaynagar and Ratnagiri units, partly offset by increased generation at its recently acquired hydro power plants in Himachal Pradesh.

It acquired two hydro assets from Jaiprakash Power Ventures in September 2015. The plant load factor for both had risen to 94 per cent in the September quarter, from 72 per cent a year before. The hydro effect is most likely to wear out in the December and March quarters.

“The first half of the financial year is generally the peak season for hydro; the second half are weak quarters. I do not expect the hydro acquisitions to continue lending support like it did this quarter. If thermal capacity offtake and realisation do not improve in the December quarter, the earnings might get further impacted,” said Anuj Upadhyay, analyst, Emkay Research.

The longer than expected wait for a long-term PPA with Karnataka might soon need to be resolved. In an earnings call-conference with analysts, the management tagged the wait as unprecedented and unplanned.

“We have seen in the past three-odd months certain significant changes not planned for or unprecedented in nature. What we have observed is that wherever we have participated in bids, the processes have still continued and it has not got translated into firm orders,” the management said.

In the call, the company added, of its total salable power generated, 78 per cent was from long-term arrangements. The management has refused to share any expectation on merchant rates, citing lack of reasonable visibility.

“Volumes for Vijayanagar declined as the short-term contract with Karnataka ended in May. The 750 Mw PPA win at Rs 4.38 a unit, which was to commence, is awaiting state government and regulatory approval,” Rahul Modi, analyst, wrote in a Antique Stock Broking report.

The plant load factor for the Vijaynagar plant fell to 31 per cent, from 81 per cent a year before. “Any further delay in commencement of this PPA might lead to continuing lower schedules, as short-term power rates in the south have reduced to Rs 3 a unit and, hence, might impact profitability,” Modi added.

The bid placed with Karnataka also expires in November, if not extended, making the December quarter important.

The company was shortlisted to supply power from its Vijayanagar plant to the Karnataka utility under a PPA in June.

“In the December quarter, a decision has to come. Hydro assets will continue to help. There is no reason to raise an alarm yet, but the company cannot continue keeping this untied capacity idle,” said an analyst who did not wish to be identified.

The management itself does not expect much to improve on the realisations in the next few quarters. “International coal prices have seen a sharp uptick in recent months, and combined with low merchant prices and low utilisation of plants, the margins are expected to remain under pressure,” it said recently.