JSW Energy powers ahead in Q3

Lower imported coal prices, higher PLFs and rate revision for Barmer power boost Q3 earnings

Weak commodity prices are proving a big boon for earnings. JSW Energy, which produces power using imported coal, reported a strong set of numbers in the third quarter as its costs came down and generation picked up. The company reported a 20 per cent growth in generation (4,770 million units) compared to the corresponding period in the previous year. The plant load factor (PLF) too, moved up to 91.34 per cent from 82.30 per cent seen in the comparable period of the previous year. Not surprising then that total income from operations jumped 34 per cent to Rs 2,365 crore.

Like some of its peers in the power sector, JSW Energy was struggling after coal prices shot up and a weak rupee made it worse. In the corresponding quarter of the previous year, the company had reported a net loss of Rs 83 crore, as cost of generating was higher than the price at which power was being sold. This year, the company started reporting a profit as coal prices have cooled internationally. In the third quarter, the company reported a net profit of Rs 311 crore against a loss of Rs 83 crore in the previous year.

Profitability has been driven largely by three factors. First, cost of imported coal per unit is down eight per cent sequentially and 14 per cent annually. Secondly, higher PLFs have brought down the overall cost of production, thereby giving a fillip to earnings. Finally, the provisional rate for supply from its Barmer plant was raised, which has also aided earnings. The company’s chief financial officer, Pramod Menon, says: “Operations at Barmer have stabilised and realisations too improved, which contributed to earnings.”

Analysts believe the company enjoys a locational advantage as down states in the south are willing to buy power at merchant rates. Power hungry states like Tamil Nadu and Andhra Pradesh, where power availability is low, are willing to buy at Rs 4.25-4.50 per unit. This has helped the company’s plants achieve higher PLFs. The company expects merchant rates to remain stable at current levels or move up very marginally. What has also worked for JSW Energy are its open contracts compared to other power producers which are bound by fixed tariff contracts.

Analysts expect the company to continue reporting healthy numbers even going forward as states will continue to buy merchant power, as the country inches closer to elections. With Karnataka going into elections in 2013 and general elections looming close, power demand is unlikely to abate. Also, analysts don’t expect coal prices to sharply move up in the near to medium term.