JSW Energy: Mining ramp-up, good demand hold key for better prospects

JSW Energy's June quarter performance came in line with the Street expectations. However, most analysts remain bearish on the stock. They say a better overall demand environment, as well as approval for increased lignite mining from its Barmer mines will be key triggers. Yet, there are no near-term upsides for the stock that has already gained a good 59 per cent since March and trades at Rs 82.

Analysts say valuations factor in the positives. Karvy's analysts, who have a Sell rating with a target price of Rs 48, say their bearish call is due to declining earnings and vulnerability to forex and imported coal prices and likely lower merchant rates post FY16, due to integration of southern grids to the national grid. Of 13 analysts polled on Bloomberg since declaration of results on Wednesday, four have Buy, three Neutral and six Sell ratings on the stock, with a consensus target price of Rs 76, suggesting a downside of seven per cent.

JSW Energy's net sales of Rs 2,521 crore were a shade higher than Bloomberg estimates of Rs 2,501 crore, helped by gains at its Barmer plant and higher sales of banked units.

During the June quarter, the Barmer (Rajasthan) facility, awaiting mining clearances to ramp-up achieved an average deemed PLF of 92 per cent against the average deemed PLF of 73 per cent in the year ago quarter, resulting in 25 per cent higher output (by 332 million units to 1,687 million units). While better availability and good demand from state electricity board could have led to good plant load factor (PLF) from Rajasthan facilities, the PLF may remain lower going ahead. Analysts at Elara Capital estimate a PLF of 75 per cent during FY16.

While the Vijaynagar plant saw a three per cent fall in output, the Ratnagiri plant continued with its softer performance on the back of lower demand. It operated at an average PLF of 68 per cent as against the average 83 per cent in the year-ago period, leading to an 11 per cent fall in output. Thus, total power output slipped 1.8 per cent year-on-year to 5,006 million units. The overall performance, however, got a boost from sales of banked energy (about 600 million units), which helped the company report its highest-ever quarterly sales of 5,605 million units.

In the near term, concerns remain over lower capacity utilisation due to muted demand. Company in its release observed the power sector continues to reel under low off-take, falling rates, increasing costs and fuel uncertainty.

For the quarter, realisations were also largely flat. While earnings before interest, tax, depreciation and amortisation at Rs 906 crore were higher than estimates of Rs 864 crore, it was lower than last year's Rs 923 crore on higher costs, by estimates of Karvy. International coal prices have softened but the adverse currency movement compared to same quarter last year led to higher costs. At the net level, though profit at Rs 325 crore was up 53.5 per cent year-on-year, it came marginally lower than expected Rs 337 crore. Last year's profit at Rs 214 crore was hit because of exceptional costs, adjusted for which, comparable profit is down 15 per cent.

Currently, JSW can mine 3.75 mtpa (million tonnes per annum) of lignite from its facilities in Rajasthan. It is awaiting clearance for capacity to be increased to seven mtpa which is crucial for boosting output.

A potential sale to the group company, JSW Steel, could go up from 300 Mw to 550 Mw (maximum) from the Ratnagiri plant over the next two to three years but that depends on gradual expansion in steel capacity and production, say Elara's analysts.