JSW ENERGY
Reco price/date: Rs 51/June 29
Current/target price: Rs 52.65/Rs 65
Global thermal coal indices are down 35% since their peak in December 2010, led by changing US energy dynamics and slowdown in demand from China, among others. Even in rupee terms, the indices are down by Rs 17 per cent despite rupee depreciation. The company is a key beneficiary with 1.5GW merchant capacity located in high-deficit consumption regions. For FY12, its standalone reported fuel cost at Rs 2.84/unit (v/s Rs 2.53/unit YoY), and we expect moderation of over 8-10 per cent over FY13E/14E. Expect the company’s consolidated EPS CAGR of 79 per cent over FY12-14, driven by fuel cost savings and full year contribution from Raj West in FY14. JSWEL’s FY12 net debt to equity ratio is 1.5x (lowest among peers), which would further moderate over the next two years. Our FY13 assumptions of $90/tonne RB index and peak PLF of 85 per cent for Ratnagiri/Vijaynagar projects are reasonable in our view. Upgrade to Buy
Motilal Oswal Securities