JSW Energy - Myirisbreport.myiris.com/NFASIPL/JSWENERG_20140903.pdf · We downgrade our rating on...

Rating Down from Buy ReduceTarget price Increased from 54 INR 69

Closing price 2 September 2014 INR 79

Potential downside -12.4%

Anchor themesWe believe that IPPs with operating capacity, front-ended capacity pipelines, credible execution capabilities, high fuel security (sourcing, pricing), and a healthy offtake mix are likely long-term winners.

Nomura vs consensusBloomberg forecasts for FY16F EPS (~INR5-11/sh) and TPs (INR48-100/sh) for JSWE exhibit a varied range and hence are not representative in our view.

Research analysts

India Power & Utilities

Anirudh Gangahar - NFASL [email protected] +91 22 4037 4516

Archit Singhal - NSFSPL [email protected] +91 22 4037 4008

Key company data: See page 2 for company data and detailed price/index chart

JSW Energy JSWE.NS JSW IN

EQUITY: POWER & UTILITIES

Stretched valuations; downgrade to Reduce

Multiples seem rich in context of EPS stagnation after FY15, reasonably price in M&A upside

Action/Catalyst: Downgrade on stretched valuations; TP raised to INR69 While sustainable FCF generation, comfortable leverage (<1.5x) and low fixed cost of generation are notable positives, and interplay of its macro earnings drivers may not be adverse in the near term, structural risk to medium/long term earnings from offtake/fuel sourcing mix persists, and earnings growth after FY15 without inorganic expansion will be a challenge for JSWE. At a 1-yr fwd P/B of 1.7x (>1SD from its 3-yr avg) and RoE peaking in FY15F, we believe a neutral-to-positive interplay of macro variables + potentially neutral implication from the Supreme Court’s final verdict on the coal blocks allocations issue + an imminent value-accretive M&A have been reasonably priced in. At CMP, as risk-reward seems unfavorable, we cut to Reduce; the downside potential to our 12mt TP is 12% (excluding a 2.5% dividend yield).

FY15F EPS raised by 11%; we assume INR/USD at 60 in medium term We expect FY15F-17F EPS growth to be negligible; our FY15F/16F EPS are 2-3% above consensus. We continue to build-in INR/USD=60 in the medium term; we raise our long-term blended merchant tariff realization forecast by ~5% to INR4.2/kWh and cut benchmark long-term FoB price assumptions by 6-7% to US$80/ton and US$40/ton for high-GCV/low-GCV coal.

Valuation: 1.6x FY16F P/B multiple seems rich, pricing in an M&A JSWE is among the best performing power utility stocks over the past 3/6/12 months; over the past 12 months, the stock price has almost doubled and 1-yr fwd P/B is up from 0.9x to 1.7x. Our revised 12-mth TP of INR69 (up 28%) is a sum of FCFE-based value of its 3.4GW generation capacity (3140MW in operation + 240MW under construction) and transmission and mining JVs [INR52.6] + book value of equity invested in its power trading subsidiary, Chhattisgarh project (1320MW), and JSTL [INR2.0] + FY15F cash at 1.5x book to factor in potential M&A-linked value accretion [INR14.3].

Year-end 31 Mar FY14 FY15F FY16F FY17F

Currency (INR) Actual Old New Old New Old New

Revenue (mn) 86,891 102,690 97,533 97,513 97,800

Reported net profit (mn) 7,547 10,611 11,810 12,077 11,881

Normalised net profit (mn) 9,267 10,611 11,810 12,077 11,881

FD normalised EPS 5.65 6.47 7.20 7.36 7.24

FD norm. EPS growth (%) -15.8 -11.2 27.4 2.3 -1.6

FD normalised P/E (x) 13.9 N/A 10.9 N/A 10.7 N/A 10.9

EV/EBITDA (x) 6.8 N/A 6.1 N/A 6.0 N/A 5.9

Price/book (x) 2.0 N/A 1.8 N/A 1.6 N/A 1.4

Dividend yield (%) 2.5 N/A 2.5 N/A 2.5 N/A 2.5

ROE (%) 11.8 14.5 17.0 15.6 13.9

Net debt/equity (%) 135.5 94.9 103.6 74.1 52.0

Source: Company data, Nomura estimates

Global Markets Research 3 September 2014

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Nomura | JSW Energy 3 September 2014

2

Key data on JSW Energy Relative performance chart

Source: Thomson Reuters, Nomura research

Notes:

Performance (%) 1M 3M 12MAbsolute (INR) 5.4 5.4 97.2 M cap (USDmn) 2,131.6Absolute (USD) 6.4 2.8 114.5 Free float (%) 25.0Rel to MSCI India 0.2 -3.9 60.2 3-mth ADT (USDmn) 4.0 Income statement (INRmn) Year-end 31 Mar FY13 FY14 FY15F FY16F FY17FRevenue 89,343 86,891 97,533 97,513 97,800Cost of goods sold -42,959 -41,374 -47,484 -49,232 -49,517Gross profit 46,384 45,518 50,049 48,281 48,283SG&A -23,800 -19,932 -22,860 -23,366 -24,662Employee share expense -1,268 -1,334 -1,482 -1,664 -1,865Operating profit 21,317 24,252 25,708 23,251 21,757EBITDA 27,932 32,351 33,794 31,494 30,068Depreciation -6,615 -8,100 -8,086 -8,243 -8,312Amortisation 0 0 0 0 0EBIT 21,317 24,252 25,708 23,251 21,757Net interest expense -9,628 -13,299 -11,299 -9,454 -8,878Associates & JCEs -117 -166 -30 39 72Other income 2,134 2,022 1,862 2,590 3,394Earnings before tax 13,706 12,808 16,241 16,427 16,345Income tax -2,733 -3,491 -4,373 -4,293 -4,406Net profit after tax 10,973 9,318 11,868 12,133 11,939Minority interests 29 -51 -58 -56 -57Other items 0 0 0 0 0Preferred dividends 0 0 0 0 0Normalised NPAT 11,002 9,267 11,810 12,077 11,881Extraordinary items -1,966 -1,719 0 0 0Reported NPAT 9,037 7,547 11,810 12,077 11,881Dividends -3,838 -3,838 -3,956 -3,955 -3,951Transfer to reserves 5,199 3,710 7,854 8,122 7,931Valuations and ratios

Reported P/E (x) 14.3 17.1 10.9 10.7 10.9Normalised P/E (x) 11.7 13.9 10.9 10.7 10.9FD normalised P/E (x) 11.7 13.9 10.9 10.7 10.9Dividend yield (%) 2.5 2.5 2.5 2.5 2.5Price/cashflow (x) 9.8 12.5 6.8 5.8 5.9Price/book (x) 2.1 2.0 1.8 1.6 1.4EV/EBITDA (x) 8.0 6.8 6.1 6.0 5.9EV/EBIT (x) 10.5 9.1 8.0 8.2 8.1Gross margin (%) 51.9 52.4 51.3 49.5 49.4EBITDA margin (%) 31.3 37.2 34.6 32.3 30.7EBIT margin (%) 23.9 27.9 26.4 23.8 22.2Net margin (%) 10.1 8.7 12.1 12.4 12.1Effective tax rate (%) 19.9 27.3 26.9 26.1 27.0Dividend payout (%) 42.5 50.8 33.5 32.8 33.3ROE (%) 15.2 11.8 17.0 15.6 13.9ROA (pretax %) 11.3 12.9 14.5 13.6 13.2Growth (%)

Revenue 46.0 -2.7 12.2 0.0 0.3EBITDA 92.9 15.8 4.5 -6.8 -4.5Normalised EPS 232.1 -15.8 27.4 2.3 -1.6Normalised FDEPS 232.1 -15.8 27.4 2.3 -1.6Source: Company data, Nomura estimates

Cashflow statement (INRmn) Year-end 31 Mar FY13 FY14 FY15F FY16F FY17FEBITDA 27,932 32,351 33,794 31,494 30,068Change in working capital -4,828 -7,655 -1,344 1,607 1,215Other operating cashflow -9,933 -14,340 -13,414 -10,751 -9,470Cashflow from operations 13,171 10,356 19,036 22,351 21,813Capital expenditure -9,104 -1,525 -2,425 -2,731 -3,941Free cashflow 4,067 8,832 16,611 19,620 17,872Reduction in investments -30 -136 0 -187 -250Net acquisitions Dec in other LT assets 0 0 0 0Inc in other LT liabilities Adjustments 122 919 0 0 0CF after investing acts 4,160 9,615 16,611 19,433 17,622Cash dividends -3,838 -3,838 -3,956 -3,955 -3,951Equity issue 0 0 0 0 0Debt issue 3,819 -2,701 -9,190 -10,428 -7,615Convertible debt issue 0 0 0 0 0Others -2,101 -1,885 167 228 214CF from financial acts -2,120 -8,424 -12,979 -14,155 -11,352Net cashflow 2,040 1,191 3,632 5,278 6,271Beginning cash 8,786 10,825 12,016 15,648 20,926Ending cash 10,825 12,016 15,648 20,926 27,197Ending net debt 92,940 89,048 76,226 60,519 46,634 Balance sheet (INRmn) As at 31 Mar FY13 FY14 FY15F FY16F FY17FCash & equivalents 10,825 12,016 15,648 20,926 27,197Marketable securities 0 0 0 0 0Accounts receivable 19,643 12,163 15,211 14,439 14,314Inventories 4,415 4,158 4,308 4,375 4,418Other current assets 10,352 12,973 9,315 8,500 8,255Total current assets 45,235 41,311 44,482 48,240 54,184LT investments 3,391 3,527 3,527 3,714 3,964Fixed assets 151,357 144,782 139,120 133,609 129,238Goodwill 280 106 106 106 106Other intangible assets 3,519 2,718 2,718 2,718 2,718Other LT assets Total assets 203,781 192,444 189,953 188,386 190,209Short-term debt 0 0 0 0 0Accounts payable 8,718 2,826 5,912 6,158 6,259Other current liabilities 27,284 20,405 15,515 15,357 16,143Total current liabilities 36,001 23,232 21,427 21,515 22,402Long-term debt 103,766 101,065 91,874 81,446 73,831Convertible debt 0 0 0 0 0Other LT liabilities 1,524 1,933 2,329 2,735 3,155Total liabilities 141,291 126,229 115,629 105,696 99,388Minority interest 452 503 758 1,003 1,203Preferred stock Common stock 16,401 16,401 16,401 16,401 16,401Retained earnings 45,637 49,311 57,165 65,287 73,218Proposed dividends Other equity and reserves Total shareholders' equity 62,038 65,712 73,566 81,688 89,618Total equity & liabilities 203,781 192,444 189,953 188,386 190,209

Liquidity (x)Current ratio 1.26 1.78 2.08 2.24 2.42Interest cover 2.2 1.8 2.3 2.5 2.5LeverageNet debt/EBITDA (x) 3.33 2.75 2.26 1.92 1.55Net debt/equity (%) 149.8 135.5 103.6 74.1 52.0

Per shareReported EPS (INR) 5.51 4.60 7.20 7.36 7.24Norm EPS (INR) 6.71 5.65 7.20 7.36 7.24FD norm EPS (INR) 6.71 5.65 7.20 7.36 7.24BVPS (INR) 37.83 40.07 44.86 49.81 54.64DPS (INR) 2.00 2.00 2.00 2.00 2.00Activity (days)Days receivable 64.1 66.8 51.2 55.6 53.7Days inventory 51.3 37.8 32.5 32.3 32.4Days payable 54.6 50.9 33.6 44.9 45.8Cash cycle 60.9 53.7 50.2 43.1 40.3Source: Company data, Nomura estimates


3

Investment Summary – Downgrade to Reduce

We downgrade our rating on JSW Energy (JSWE) to Reduce, pegging our 12-month target price at INR69 (previously INR54), implying potential 12% downside from the current price (CMP). In our view, although the interplay of macro earnings drivers may not appear adverse in the near-term, structural risk to medium/long term earnings persists and earnings growth post FY15 sans inorganic expansion will be a challenge. While sustainable FCF generation and a leverage of <1.5x are strong positives, at FY16F P/B of 1.6x, we believe a potential M&A + likely neutral impact from the Supreme Court’s (SC’s) final verdict on the coal blocks allocations issue have been reasonably priced in; risk-reward at CMP appears unfavorable.

Structural risk to medium/long term earnings persists… Despite 200-250MW offtake out of the 600MW open ended capacity from the Ratnagiri project being progressively tied up on a cost-plus basis by mid-FY16 with JSW Steel (JSTL IN, Neutral) and higher contribution from its regulated-return based Barmer facility operating at steady state utilization levels, 40% of JSWE’s overall offtake would remain open-ended (exposed to short-term / merchant tariffs), entire coal-fired capacity would use imported spot coal as feedstock and only ~60% of offtake (from coal fired projects) tied up in long-term PPA would have a 100% fuel cost pass-through. Accordingly, structural risk to medium-long term earnings would remain elevated due to the high sensitivity to the interplay between three uncontrollable variables – merchant tariff realizations, seaborne thermal coal prices and the INR/USD exchange rate variation.

…although the interplay of macro earnings drivers may not be adverse in the near-term, earnings growth post FY15 sans inorganic expansion will be a challenge… Management’s guidance suggesting a relatively stable YoY blended merchant realization in FY15, sustained weakness in seaborne thermal coal prices and consensus outlook for a stable-to-positive INR/USD over the next 18 months, together suggest that the near-term interplay of JSWE’s macro coal-fired earnings drivers may not be adverse. In addition, as contribution from RWPL reaches steady-state (normal) level, we expect JSWE would post a 27% YoY rise in normalized EPS in FY15F.

However, in the absence of organic/inorganic capacity addition, we believe earnings growth in FY16F/17F would be challenging, considering [1] sustained pressure on merchant realizations in South India (progressive integration of the Southern Grid with the National Grid + incremental generation capacity coming on stream) and unlikely resurgence of merchant realizations in Maharashtra, which would at best cap merchant realizations at FY15 levels, [2] further downside in seaborne thermal coal prices from FY15F levels would probably be limited, particularly in the context of our Global Metals & Mining Team’s outlook for thermal coal prices moving up from CY2015 and [3] full year impact of Government doubling the coal cess and effective customs duty in July 2014 mitigating the benign FoB thermal prices by ~US$1/ton.

Nevertheless, sustainable FCF generation and leverage of <1.5x offers ample financial flexibility. We have raised our FY15F EPS forecast for JSWE by 11% and introduced FY16F/17F estimates (our FY15F/16F EPS forecasts are 2-3% above consensus).

…and as valuation multiples arguably factor in a potential M&A to a reasonable extent, we believe the risk-reward at CMP is unfavorable JSWE’s stock price performance is amongst the top in the power utilities space over the past six months (up ~60%); over the past 12 months, the stock price has almost doubled and 1-yr fwd P/B multiple has moved up from 0.9x to 1.7x as the outlook for prospective earnings and RoE improved. In our view, as RoE is likely to peak out in FY15F and FY15F-17F earnings growth appears negligible, at a 1-yr fwd P/B of 1.7x (>1SD from its 3-year average) and 1.1x FY16F P/B vs. RoE, valuation multiples appear a bit stretched, given the sensitivity of earnings to macro (uncontrollable) variables. Moreover, current valuations seem to be largely factoring in JSWE concluding a reasonable acquisition in FY15 (other than management intent and financial flexibility to undertake an M&A, timeline, valuation and earnings accretion is not known and hard to predict) and the potentially neutral impact from the SC’s final verdict on the coal blocks allocations issue.


4

Accordingly, we find the risk-reward balance at current levels to be unfavourable and downgrade the stock to REDUCE. Our revised 12-mth TP of INR69 (up 28%) is a sum of the FCFE-based value of its 3.4GW generation capacity (3140MW operational + 240MW under-construction) together with transmission and mining JVs [INR52.6] + book value of equity invested in its power trading subsidiary, Chhattisgarh project (1320MW), and JSTL [INR2.0] + FY15F cash on hand valued at 1.5x book to factor in a potential M&A-linked value accretion [INR14.3]. At CMP, the downside potential to our 12mt TP is 12% (excluding a dividend yield of 2.5%).

What are the underlying assumptions the CMP seems to be reflecting? Relative to our underlying macro assumptions, it seems that the CMP is building seaborne thermal coal prices to remain flat at FY15F levels, a 6-7% appreciation in INR/USD from current levels, and 5% higher blended merchant realizations from FY16F or valuing FY15F cash at 2x book – i.e. a favourable interplay of macro variables or a higher option value of cash on hand. Accordingly, we do not believe there is a case for putting fresh money into the stock at CMP. Specifically, we note –

• If we were to extrapolate our FY15F/16F assumption for seaborne coal prices for the long term (implying high-GCV and low-GCV FoB coal price at US$73/ton and US$38/ton respectively), our 12-mth TP for JSWE would rise by ~6% to INR73.

• In addition, if we assume INR were to appreciate going forward (i.e. INR/USD at 58.0 and 56.5 as of FY15F and FY16F, in line with our F/x team forecasts), our 12-mth TP for JSWE would rise to INR77 (11% above our base case).

• Further, FY16F onwards, if we were to assume 5% higher merchant prices vs. base case (implying long-term blended merchant tariffs at INR4.4/kWh), our 12-mth TP for JSWE would rise to INR83 (20% above our base case), and 5% above the CMP.

• Finally, if we were to value FY15F cash at 2x book, our 12-mth TP for JSWE would rise to INR88 (28% above our base case), and 11% above the CMP.

Blue-sky scenario: Fair value of the stock could be INR98 (24% above the CMP) In a blue-sky scenario, wherein we assume [1] INR/USD at 58.0 and 56.5 as of FY15F and FY16F, [2] post FY15, high-GCV and low-GCV FoB coal price at US$70/ton and US$35/ton respectively, [3] 10% higher merchant tariffs (implying long-term blended merchant realization at INR4.65/kWh), and [4] valuing FY15F cash at 2.0x book, the fair value of the stock would rise to INR98 (24% above the CMP), our FY16F/17F EPS would be higher by 39%/46% respectively, and implied FY16F P/B at CMP would be 1.5x.

Fig. 1: JSWE – Old and new milestone risk-adjusted FCFE value (INR/share) Lower fuel cost and slightly higher merchant tariffs explain the 15% increase in our ex-cash milestone risk–adjusted FCFE for JSWE

Source: Bloomberg, Nomura estimates

Projects New Old Comment / Key reason for variation

OPERATIONALVijayanagar-I 5.9 4.3 Vijayanagar-II 9.6 8.3 Ratnagiri 8.4 6.3 Low er FoB coal cost + more offtake on cost-plusRWPL-I 25.0 22.5 BLMCL 1.0 1.3 Jaigad Transco 1.1 0.9 Continues to be valued at 13% CoE

Total 51.1 43.6 WORK in PROGRESSRWPL-II - 0.4 Project scrappedChhattisgarh 0.7 0.7 Book value of equity investedKutehr 1.5 1.9 Pushback in commissioning timelineMJSJ Coal (11% ow nership) - 0.0 Risk of deallocation as per Supreme Court's 25-Aug judgementTotal 2.2 3.0 Value of projects 53.3 46.6 Cash (INR/sh) 14.3 7.0 1.5x book as of FY15F vs. 1x book as of FY14F previouslyInvestment in JSW PTC 0.4 - Book value of equity investedInvestment in JSW Steel 0.9 - Included at book value12-mth TP 69.0 53.7

Benefit of debt refinancing; continues to be valued at 13% CoE

Low er FoB coal prices + higher merchant tarif f


5

Fig. 2: JSWE – Nomura vs. consensus (INR mn) Our FY15F/16F normalized PAT forecasts are ~2%/3% above consensus


Fig. 3: JSWE – Change in headline estimates (INR mn) We increase our FY15F EBITDA/PAT forecasts by 10%/11%

* Updated for reported financials | Source: Company data, Nomura estimates

Fig. 4: JSWE – 1-yr fwd P/B since listing At 1.7x, JSWE's 1-yr fwd P/B is above '+1SD' of the Its 3-yr average


Fig. 5: JSWE – 1-yr fwd P/B vs. RoE (vs. its peers) With RoE likely to peak in FY15F, valuation multiples appear stretched


Key risks to our investment view (rating, earning estimates, and target price) Risks to our investment thesis for JSWE essentially emanate from a positive interplay of key earnings drivers (FoB cost of coal, INR/USD rates, and merchant tariff realizations) over the medium-term, reduction in open-ended coal-fired capacity without a material cut in returns (margins) as fixed cost is low, and substantially earnings-accretive + favourably valued M&A.

• Persistent weakness in FoB coal prices and INR/USD appreciation – JSWE’s earnings outlook is highly sensitive to the landed cost of coal, which, in turn, is an interplay between FOB price of seaborne thermal coal, INR/USD exchange rate, and freight rates. Although JSWE hedges 100% of its fuel-procurement linked Buyers' Credit and has negligible F/X debt exposure, further weakness in FoB coal prices (Richard’s Bay and 4200GCV ex-Indonesia marker prices are down 5-9% YTD in FY15) together with materialization of our f/x strategy team’s view of a 6-7% INR/USD appreciation over the next 18 months, would require an upward revision in earnings and TP for the stock.

• Stable/higher blended realization driven by tie-up of incremental coal-fired capacity in long-term PPAs without taking a material cut in margins – Maharashtra, Karnataka and the rest of South India are the geographies where the bulk of JSWE’s open-ended coal-fired capacity is sold. While a low-deficit scenario + unfavourable economics on taking the open access route in Maharashtra is likely to cap a resurgence in merchant tariff realizations for its Ratnagiri project, pressure on ‘realization premium’ in South India persists on account of the progressive integration of the Southern Grid and incremental capacity coming on line. However, as JSWE’s fixed cost of generation is low vs. peers,

FY15F FY16F FY17FConsolidated SalesNomura 97,533 97,513 97,800 Consensus 92,881 94,286 95,508 Nomura Vs Consensus (%) 5.0 3.4 2.4 Consolidated EBITDANomura 33,794 31,494 30,068 Consensus 32,463 31,265 29,163 Nomura Vs Consensus (%) 4.1 0.7 3.1 Consolidated Net Profit (Normalized)Nomura 11,810 12,077 11,881 Consensus 11,636 11,697 11,277 Nomura Vs Consensus (%) 1.5 3.3 5.4 Reported PATNomura 11,810 12,077 11,881 Consensus 11,539 11,541 11,515 Nomura Vs Consensus (%) 2.4 4.6 3.2

FY14* FY15F FY16FRevenueNew 86,891 97,533 97,513 Old 103,752 102,690 N/A% change (16.3) (5.0) EBITDANew 32,351 33,794 31,494 Old 33,809 30,695 N/A% change (4.3) 10.1 Normalized Net ProfitNew 9,267 11,810 12,077 Old 11,946 10,611 N/A% change (22.4) 11.3 Reported PATNew 7,547 11,810 12,077 Old 10,173 10,611 N/A% change (25.8) 11.3

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Dec-09

Mar-10

Jun-10

Sep

-10

Dec-10

Mar-11

Jun-11

Sep

-11

Dec-11

Mar-12

Jun-12

Sep

-12

Dec-12

Mar-13

Jun-13

Sep

-13

Dec-13

Mar-14

Jun-14

1yr forward P/B chart

+1 SD

-1 SD

3 year mean

0

2

4

6

8

10

12

14

16

18

- 0.5 1.0 1.5 2.0 2.5

FY

16F

Ro

E (%

)

FY16F P/B

JPVL

NHPC

Torrent Power

RPWR

KSK

JSPL

NTPC

CESC

ADANI

PWGR

JSW

TPWR


6

particularly for its 860MW Vijayanagar facility (where no offtake is tied-up in long-term PPAs), it enables the company to competitively price its bids for capacity tie-up via long-term PPAs (particularly in Karnataka and Andhra Pradesh where State Discoms have invited long-term bids) without necessarily taking a material hit to margins. If such a favourable scenario pans out, the structural risk to consolidated earnings would reduce and it would entail an upside risk to our earnings forecast and TP for the stock.

• FCF generation, low leverage and negligible CWIP offer ample financial flexibility in pursuing M&As – In a sector where the majority of private IPPs are grappling with high leverage and/or a large CWIP, JSWE's strong balance sheet (leverage of <1.5x, negligible F/X debt, and a fully hedged US$ Buyers' Credit), negligible CWIP and FCF-generating operational capacity offers flexibility to fund highly value-accretive acquisition(s). While we value FY15F cash at 1.5x book to factor this potential upside, the terms & conditions of the potential M&As could merit an upside risk to our earnings and TP for the stock.

Implications of SC’s verdict on coal blocks allocation on JSWE – neutral at best JSWE’s investment in captive coal blocks is immaterial – the company has invested ~INR105mn for an 11% stake in MJSJ Coal, which is a JV to develop the Utkal-A and Gopal Prasad (West) thermal coal blocks in Odisha. JSWE’s share of coal production from this JV was expected to fulfil ~30% of the coal requirement for its under-abeyance 1320MW Chhattisgarh project, wherein it has invested ~INR1.1bn equity up to FY14. Accordingly, the direct implication of SC’s verdict on coal blocks allocation seems minimal.

However, in our view, a wider interpretation/read-across of the SC verdict on declaring commercial coal mining by State-owned entities/JVs and coal blocks allocated via Government dispensation as ‘illegal’ does pose a question mark on lignite supply for its 1080MW Barmer facility. In this case, we note that –

• JSWE’s Barmer project sources lignite from Kapurdi/Jalipa vested in a 51:49 JV between RWPL (100% subsidiary, unlisted) and RSMML (a Rajasthan Government enterprise) – the mines were allocated to RSMML in 2006 via a Government dispensation.

• Prior to 2006, the two lignite mines were earlier vested with the Rajasthan Government – the State Government had invited bids for setting up of thermal power plants based on lignite from the two mines back in 1994.

• SC’s verdict is restricted to the 218 coal blocks allocated between 1993-2010 by the Central Government to various private/public entities via Government dispensation or by Screening Committee. Within this, the Government has sought an exemption from de-allocation for 46 producing/ready-to-produce coal blocks where end-use projects are in place. Further, the Coal Mines Nationalization Act, 1973, does not find a mention of ‘lignite’.

Overall, as Kapurdi & Jalipa are producing/ready-to-produce lignite mines and Barmer is a regulated return project (cost-plus PPA with Rajasthan Discoms), we see the risk to operation of the project from the SC ruling on the coal blocks allocation issue to be ‘manageable’.

Changes in our key earnings assumptions for JSWE • INR/USD exchange rate – In line with our house view to keep exchange rates near

current levels, we maintain INR/USD at 60.0 in our earnings forecasts and FCFE valuation of JSWE. We note that our F/x team expects the INR to appreciate over the next 18 months, pegging INR/USD=58 as of CY14 and INR/USD=56.5 as of CY15.

• Coal sourcing / pricing – We peg the high-GCV / low-GCV coal mix at 54:46 for FY15F (vs. 65:35 for FY14) and ~50:50 thereafter, broadly in line with management guidance. Our FoB coal price assumption is derived from our Global Metals & Mining team’s revised thermal coal price forecast (see EMEA Metals & Mining: What to watch for this earnings season, July 15, 2014), adjusted for the indicative GCV of coal procured by JSWE and the marginal discount to benchmark prices the company is typically able to secure. Accordingly, we now build in long-term high-GCV / low-GCV FOB coal price at US$80/ton (US$85/ton previously) and US$40/ton (US$43/ton previously) respectively.

http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=687790&appname=GRP&cid=cDZkVXQ2YitsSzQ90�

http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=687790&appname=GRP&cid=cDZkVXQ2YitsSzQ90�


7

• Electricity sales volume – Our FY15 net generation forecast for JSWE is 2% lower at 20.7bn kWh (including ~14bn kWh from coal-fired capacity); our FY16F net generation forecast is a tad higher at 21.4bn kWh (including 14.3bn kWh from coal-fired capacity).

• Merchant tariff realizations – Based on management commentary on offtake tie-ups and likely trend in tariff realizations, we have raised our ex-Vijayanagar realization assumption and lowered our ex-Ratnagiri realization assumption; while our FY14 blended merchant realization forecast for JSWE is broadly unchanged at INR4.4/kWh, our forecast for FY15F is up ~6% at INR4.5/kWh. We peg our long-term blended merchant tariff realization assumption at INR4.2/kWh (vs. INR4.0/kWh previously).

• Brand usage fee @0.25% of gross turnover: As the JSWE shareholders have approved a resolution whereby starting FY15, the company would pay its parent (JSW Investments) an annual fee of 0.25% of consolidated gross turnover for usage of the ‘JSW’ brand, we build in the same into our earnings forecast; the dent to EBITDA on our FY15-17F gross revenue forecast is ~INR240mn.

• Cost of hedging US$-denominated Buyers’ Credit: As JSWE is now fully hedging its US$ exposure via Buyers’ credit, we include the cost of the same in our revised earnings forecasts. We apportion this cost between the Ratnagiri and Vijayanagar facilities while calculating the FCFE based value of the two facilities.

.5 Fig. 6: JSWE – Changes to key assumptions We peg FY15F net sales at 21bnkWh, merchant realization at INR4.5/kWh


Fig. 7: JSWE – Changes to key assumptions (contd.) We expect unit cost of coal at INR2.7/kWh in FY15F/FY16F


Fig. 8: JSWE – Key operating/financial metrics CIF cost of coal to drop 6%/3% in FY15F/16F,long-term merchant tariffs remain pegged at INR4.2/kWh

Note: * Updated for reported financials | CIF Price = FOB price + sea freight charge to India + import duty.


FY14* FY15F FY16FNet Generation (MU)New 17,061 20,739 21,435 Old 21,005 21,184 21,256 % Change (18.8) (2.1) 0.8 Merchant Realization (INR/kWh)New 4.4 4.5 4.4 Old 4.4 4.2 4.1 % Change - 6.3 6.9

FY14* FY15F FY16FBlended Coal Cost (INR/kWh)New 2.7 2.7 2.6 Old 2.7 2.9 3.0 % Change 2.8 (6.8) (10.8) INR/USD (Average)New 60.5 60.0 60.0 Old 60.0 60.0 60.0 % Change 0.8 - -

FY14* FY15F FY16F FY17FCapacity / GenerationCapacity (MW) – YE 3,140 3,140 3,140 3,140 Capacity (MW) – Effective 3,140 3,140 3,140 3,140 PLF 68.3% 83.2% 85.9% 85.9%Gross Generation (mn kWh) 18,798 22,872 23,617 23,626 Sales (mn kWh) 17,061 20,739 21,435 21,440

PPA (% of total) 47.5 53.8 57.0 58.7

FuelINR/USD (Average) 60.5 60.0 60.0 60.0 Coal consumed/required 6.3 6.8 7.0 7.0

High GCV 4.1 3.7 3.5 3.5 Low GCV 2.2 3.1 3.5 3.6

Coal cost (FOB, US$/ton) 62 57 55 56 High GCV 73 73 73 75 Low GCV 40 38 38 38

Coal cost (CIF, INR/ton) 4,935 4,639 4,480 4,505 High GCV 5,771 5,773 5,695 5,828 Low GCV 3,413 3,310 3,258 3,205

Realization / cost (INR/kWh)Tariff realization (Coal Capacity) - Blended 4.3 4.4 4.1 4.0 Tariff realization - Merchant/short-term 4.8 4.5 4.4 4.3 Fuel cost (Coal) - Blended 2.7 2.7 2.6 2.7


8

Fig. 9: JSWE – Earnings and TP sensitivity to key operating/financial assumptions EPS highly sensitive to merchant tariffs and landed cost of coal


Fig. 10: JSWE – Change in imported coal price assumptions and volume mix High-GCV / low-GCV coal mix broadly based on management guidance

* Updated for reported financials; pricing assumption derived from our Global Metals & Mining team’s coal price forecast, adjusted for GCV | Source: Company data, Nomura estimates

Fig. 11: JSWE – Coal demand-supply ramp-up FY16F onwards, we build in a 1:1 split between high/low GCV coal , as per management guidance


Sensitivity to key assumptions Adj. FCFEFY15F FY16F FY17F (INR/sh)

FOB cost of Seaborne Thermal CoalBase case 7.2 7.4 7.2 69.0

+10% change 6.1 6.2 6.1 60.1-10% change 8.3 8.4 8.4 77.6

Sensitivity to 1% variation (%) 1.5 1.4 1.5 1.2 Landed cost of Seaborne Thermal CoalBase case 7.2 7.4 7.2 69.0+10% change 5.5 5.6 5.5 55.0-10% change 8.9 9.0 8.9 82.0Sensitivity to 1% variation (%) 2.3 2.2 2.3 1.9

Merchant tariffsBase case 7.2 7.4 7.2 69.0+10% change 9.4 9.5 9.4 85.7-10% change 5.0 5.1 5.0 51.7Sensitivity to 1% variation (%) 3.1 3.1 3.0 2.5 INR/USD RateBase case (INR/USD : 60) 7.2 7.4 7.2 69.0INR/USD : 56 8.0 8.1 8.0 74.7INR/USD : 58 7.6 7.7 7.6 71.9INR/USD : 62 6.8 7.0 6.9 65.8INR/USD : 64 6.4 6.6 6.5 62.9Sensitivity to 1% variation (%) 1.7 1.6 1.6 1.2

EPS (INR/sh)

Coal price (US$/ton, FoB) FY14* FY15F FY16F FY17F Long TermHigh GCVNew 73.5 73.1 72.8 75.2 80.0 Old 80.0 83.0 89.3 85.0 85.0 % change (8.2) (11.9) (18.5) (11.6) (5.9) Low GCVNew 40.3 37.9 37.9 38.1 40.0 Old 43.0 44.8 46.6 43.0 43.0 % change (6.2) (15.6) (18.7) (11.5) (7.0) Low GCV Coal (% of total)New 35.4 46.0 49.8 50.4 Old 50.5 50.4 50.7 48.1

FY13 FY14* FY15F FY16F FY17FCoal-fired Capacity (MW)

Year-end 2,060 2,060 2,060 2,060 2,060 Effective 2,060 2,060 2,060 2,060 2,060

PLF 93% 81% 85% 86% 86%Coal Requirement (mt)Total 7.4 6.3 6.8 7.0 7.0

High GCV 3.3 4.1 3.7 3.5 3.5 Low GCV 4.1 2.2 3.1 3.5 3.6

Coal Mix (%)High GCV 44.0 64.6 54.0 50.2 49.6 Low GCV 56.0 35.4 46.0 49.8 50.4


9

Financials: Offtake mix to improve, but earnings likely to stagnate in absence of inorganic growth

Steady-state operations at RWPL and lower open-ended capacity at Ratnagiri augur well for earnings stability… In our view, together with the Barmer project looking set to consistently operate at 80-85% PLF (risk of lignite unavailability expected to fully cease later this year) at higher interim tariffs (final tariff order expected to be issued within FY15), offtake of ~200MW out of the 600MW open ended capacity from the Ratnagiri project being progressively tied up on a cost-plus basis with JSTL (for supply to its Dolvi facility) by Sep-2015 augur well for reducing the susceptibility of JSWE’s consolidated earnings to the uncontrollable macro factors (merchant tariff realizations, seaborne thermal coal prices and INR/USD exchange rate variation).

Still, as of FY16F, 61% of the offtake from JSWE’s coal-fired capacity (40% of its overall capacity) would remain open-ended (exposed to short-term / merchant tariffs), entire coal-fired capacity would use imported spot coal as feedstock and ~60% of its long-term PPA offtake enables a 100% fuel cost pass-through (see Figures 13 and 15).

…but earnings growth post FY15 appears to be a challenge We estimate JSWE would post a 27% YoY rise in EPS in FY15F – growth would be driven by contribution from RWPL approaching steady-state levels on account of normal operations and higher interim tariffs, merchant realizations remain relatively steady, cost of generation (unit fuel cost) drops marginally despite higher coal cess, inland transport charges and effective customs duty post 1QFY15.

However, in the absence of organic/inorganic capacity addition, we believe earnings growth in FY16F/17F would be challenging considering –

• Sustained pressure on merchant realizations in South India (progressive integration of the Southern Grid with the National Grid + incremental generation capacity coming on stream) and unlikely resurgence of merchant realizations in Maharashtra, which would at best cap merchant realizations at FY15 levels.

• Potential downside in seaborne thermal coal prices from FY15F levels would probably be limited, particularly considering our Global Metals & Mining Team’s thermal coal price outlook.

• Earnings upside from Barmer would be limited; upon issuance of the final tariff order for the project, two-thirds of the benefit of refinancing of loans, which RWPL retains in the current arrangement of a revenue being pegged at a fixed interim tariff, would need to be passed on to the consumers.

We do note that if our house view of INR/USD appreciation materializes (INR/USD=58 as of CY14 and INR/USD=56.5 as of CY15), prospects of earnings growth would improve. Accordingly, we forecast JSWE’s consolidated EBITDA decline YoY in FY16F and FY17F, but EPS to remain stagnant as lower net interest expense boosts pre-tax earnings.

Sustainable FCF generation and leverage below 1.5x provides financial flexibility Financial flexibility emanating from sustainable FCF generation in the absence of any significant capex (besides the 240MW Kutehr hydropower project, where construction is expected to begin in FY15, the balance project pipeline is under abeyance) and a relatively robust balance sheet (leverage stood at 1.45x as of June 2014), remains a key positive for JSWE. Until the management zeros-in on an acquisition, we expect progressive utilization of the FCF towards debt refinancing/reduction and sustaining dividend payout commensurate to at least INR2/share (i.e. the DPS in FY14 and FY15), we expect FY15-17F FCF yield at 13-15%.


10

Fig. 12: JSWE – Gross margin on coal-fired offtake Gross margin increases in 1QFY15 on the back of a dip in coal prices

Note: Gross Profit = Revenues from Power Sold/Traded – Fuel Cost


Fig. 13: JSWE – Offtake split of effective capacity Nearly 40% offtake to remain exposed to merchant/short-term tariffs

* PPA includes sale on ‘Conversion’ | Source: Company data, Nomura estimates

Fig. 14: JSWE – Consolidated free cash flows Healthy CF from operational projects + limited capex outlay = FCF


Fig. 15: JSWE – Offtake split of effective coal-fired capacity ~60% of the PPA-linked capacity in FY16F has a 100% fuel pass-thru


Fig. 16: Maharashtra – Electricity Deficit (base load) YTD deficit in FY15 just above FY14 levels, but well below FY13 levels

Source: CEA, Nomura research

Fig. 17: Maharashtra – Peak Electricity Deficit Peak deficit again subdued after a sharp spike in 4QFY14

Source: CEA, Nomura research

3.96 4.14 4.19 3.93 4.04 4.69

4.48 4.61 4.32

2.66 2.89 2.35

2.25 2.42

3.42 2.89 2.84

2.36

0.5

1.0

1.5

2.0

2.5

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1Q

FY

13

2Q

FY

13

3Q

FY

13

4Q

FY

13

1Q

FY

14

2Q

FY

14

3Q

FY

14

4Q

FY

14

1Q

FY

15

Realization (INR/kWh) Fuel Cost (INR/kWh)

Spread (INR/kWh) - RHS

1,337 1,723 1,740 1,830 1,880

1,312 1,417 1,400 1,310 1,260

20

30

40

50

60

70

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY13 FY14 FY15F FY16F FY17F

Merchant (LHS)

PPA* (LHS)

Merchant as % of total (RHS)

(%)(MW)

(10,000)

-

10,000

20,000

30,000


mn INROperating CF Investing CF FCF

0

500

1,000

1,500

2,000

2,500


Merchant

PPA - Restricted fuel cost pass thru

PPA - 100% fuel cost pass thru(MW)

0%

1%

2%

3%

4%

5%

0

100

200

300

400

500

600

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

MU Deficit (FY13) Deficit (FY14)

Deficit (FY15) Deficit % (FY13) - RHS

Deficit % (FY14) - RHS Deficit % (FY15) - RHS

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

MW Deficit (FY13) Deficit (FY14)

Deficit (FY15) Deficit % (FY13) - RHS

Deficit % (FY13) - RHS Deficit % (FY15) - RHS


11

Fig. 18: Richards Bay coal price index 2QCY14 average FoB price is US$75/ton, down 7% YoY, 5% QoQ

Source: Bloomberg, Nomura research

Fig. 19: Nomura’s Global thermal coal price forecasts Richards Bay coal pegged at ~US$73/ton in CY14; US$80/ton in long-term


Fig. 20: Landed cost of high-GCV coal in India In terms of INR, the CIF cost of RSA coal in 2QCY14 was ~7% lower QoQ

Note: We keep long-term freight charges constant at US$17.5/ton; CIF = FOB + Freight charges to India + Import duty; * Up to August


Fig. 21: Landed cost of low-GCV coal in India In terms of INR, the CIF cost of INA coal in 2QCY14 was ~8% lower QoQ

Note: We keep long-term freight charges constant at US$14/ton; CIF = FOB + Freight charges to India + Import duty; * Up to August

Source: Ministry of Energy & Mineral Resources (Indonesia), Bloomberg, Nomura estimates

50

75

100

125

150

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000 Ja

n-0

9

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Richards Bay FOB Price (INR/ton) [LHS]

Richards Bay FOB Price (US$/ton) [RHS]

50

70

90

110

130

2010 2011 2012 2013 2014F 2015F 2016F Long Run

Newcastle Index

Richards Bay Index

INA-Kalimantan (5900 GCV)

Richard Bay - Coal Price (FOB)

US$/ton AVG QoQ 6mth 12mth1QCY13 84.8 -1.1% -5.7% -19.1%

2QCY13 80.5 -5.1% -6.1% -13.8%

3QCY13 73.0 -9.4% -14.0% -18.9%

4QCY13 83.1 13.9% 3.2% -3.1%

1QCY14 78.7 -5.3% 7.9% -7.2%

2QCY14 75.0 -4.7% -9.7% -6.8%

3QCY14* 71.3 -5.0% -9.4% -2.3%

INR/ton AVG QoQ 6mth 12mth1QCY13 4,594 -1.2% -7.5% -12.9%

2QCY13 4,501 -2.0% -3.2% -11.0%

3QCY13 4,514 0.3% -1.7% -9.1%

4QCY13 5,147 14.0% 14.3% 10.7%

1QCY14 4,857 -5.6% 7.6% 5.7%

2QCY14 4,485 -7.7% -12.9% -0.4%

3QCY14* 4,311 -3.9% -11.2% -4.5%

Richard Bay - Coal Price (CIF)

INR/ton AVG QoQ 6mth 12mth1QCY13 5,462 -1.0% -6.7% -13.9%

2QCY13 5,553 1.7% 0.7% -6.4%

3QCY13 5,660 1.9% 3.6% -3.3%

4QCY13 6,319 11.6% 13.8% 14.5%

1QCY14 6,014 -4.8% 6.2% 10.1%

2QCY14 5,597 -6.9% -11.4% 0.8%

3QCY14* 5,427 -3.0% -9.8% -4.1%

Indonesia - 4200GCV Coal Price (FOB)

US$/ton AVG QoQ 6mth 12mth1QCY13 47.5 5.7% 4.8% -17.9%

2QCY13 46.4 -2.3% 3.2% -13.0%

3QCY13 42.8 -7.7% -9.9% -5.6%

4QCY13 42.8 -0.1% -7.8% -4.8%

1QCY14 43.4 1.5% 1.5% -8.5%

2QCY14 40.8 -6.1% -4.6% -12.1%

3QCY14* 39.6 -3.0% -8.9% -7.5%

INR/ton AVG QoQ 6mth 12mth1QCY13 2,573 5.7% 2.8% -11.6%

2QCY13 2,594 0.8% 6.5% -10.2%

3QCY13 2,650 2.2% 3.0% 5.9%

4QCY13 2,650 0.0% 2.2% 8.8%

1QCY14 2,680 1.1% 1.2% 4.2%

2QCY14 2,438 -9.0% -8.0% -6.0%

3QCY14* 2,393 -1.8% -10.7% -9.7%

Indonesia - 4200GCV Coal Price (CIF)

INR/ton AVG QoQ 6mth 12mth1QCY13 3,420 4.2% 1.7% -11.2%

2QCY13 3,501 2.3% 6.7% -6.4%

3QCY13 3,649 4.2% 6.7% 8.5%

4QCY13 3,651 0.0% 4.3% 11.3%

1QCY14 3,678 0.7% 0.8% 7.5%

2QCY14 3,402 -7.5% -6.8% -2.8%

3QCY14* 3,366 -1.0% -8.5% -7.8%


12

Valuation: 12-month target price raised to INR69

We deploy a SOTP valuation methodology (FCFE-based value of operational and under-construction projects + fair value of cash & investments) to arrive at the 12-mth TP for the stock. Our 12-mth TP of INR69 for JSWE includes the FCFE-based value of its 3.4GW generation capacity (3140MW operational + 240MW under-construction) together with transmission and mining JVs [INR52.6] + book value of equity invested in JSW PTC, Chhattisgarh project (1320MW), and JSTL [INR2.0] + FY15F cash on hand valued at 1.5x book to factor in a potential M&A-linked value accretion [INR14.3]. At CMP, the downside potential to our 12mt TP is 12% (not adjusting for the dividend yield).

Projects continue to be valued on FCFE, adjusted for milestone risk discounts We continue to deploy a milestone risk–adjusted FCFE-based methodology to value JSWE’s power generation projects that appear feasible – i.e., operational and under construction/development but with tangible progress and reasonable likelihood of materializing. The six milestone risks, which capture the risk of a power project from conception to commissioning, apply appropriate discounts to the FCFE value of a given project – in our view, this approach enables investors to objectively view the incremental value ascribed to a project as key prerequisites for commissioning fall into place. Fig. 22: JSWE – FCFE-based price target build-up FCFE of operational projects = INR51.1share (ex-cash)

Notes: (1) For milestone discount, we have assigned a 15% weight to Land Acquisition/Possession, a 15% to Environment & Forest Clearances, a 30% to Fuel Security, 5% to Water Availability, 15% to Financial Closure and 20% to Offtake Mix. (2) Exchange rate assumption: INR/USD =60;

3) * We have used a milestone discount of 43% for Kutehr; 4) ^ at book value of equity invested | Source: Company data, Nomura research Fig. 23: India power utilities – milestone risk matrix for applying discount to the FCFE value of private IPP projects Six milestones for coal/gas/hydro project tracked to bring objectivity to the fair value of a project as it progresses towards commissioning

* Risk weight is 15% or 7.5% within each subcategory based on extent of milestone achievement. | Source: Nomura research

Projects JSWE Capacity COD Cost of Project Implied

Stake (MW) Unit-I Equity Equity P/B Project JSWE (Rs mn) (Rs/sh)OPERATIONALVijayanagar-I 100% 260 Aug-00 14% 2,760 3.5 9,606 9,606 9,606 5.9 Vijayanagar-II 100% 600 Jul-09 14% 4,650 3.4 15,806 15,806 15,806 9.6 Ratnagiri 100% 1,200 Sep-10 14% 14,250 1.0 13,821 13,821 13,821 8.4 RWPL 100% 1,080 Nov-09 13% 17,913 2.3 41,035 41,035 41,035 25.0 Mining (BLMCL) 49% 13% 5,400 0.6 3,507 1,719 1,719 1.0 Jaigad Transco 74% Jul-10 13% 1,375 1.8 2,525 1,869 1,869 1.1 Total 3,140 46,348 1.9 86,301 83,856 83,856 51.1 UNDER CONSTRUCTIONChhattisgarh ^ 100% 1,320 1,086 1.0 1,086 1,086 1,086 0.7 Kutehr * 100% 240 Mar-20 14% 5,000 0.9 4,323 4,323 2,486 1.5 Total 1,560 6,086 0.9 5,409 5,409 3,571 2.2

Project Value (INR mn) 52,433 1.7 91,710 89,264 87,427 53.3

Project Value (US$ mn) 874 1,528 1,488 1,457 INVESTMENTS & CASHEquity invested in JSW Pow er Trading Company 700 0.4 Holding in JSW Steel 1,517 0.9 FY15F Cash (at 1.5x book) 15,648 14.3

Target Price (INR/share) 69.0

FCFE (FY15F) Fair Value

Milestone Max Wgt Basis / MethodologyLand Acquisition / Possession 15.0% % of land required for the plant acquired / in possession [Full (NIL), >2/3rd (7.5%), <2/3rd (15%)]Environment / Forest Clearances 15.0% Not available / applied (15%); Stage-I / ToR secured (7.5%); All secured (NIL)Water Availability 5.0% No allocation (5%); allocation / sea w ater availability (NIL)Financial Closure 15.0% Not secured (15%), secured and/or 100% debt sanction (NIL)Fuel Security (Sourcing) 30.0%

Captive (domestic) * No environment/forest clearance (15%), land for >50% mining area not acquired/possessed (15%)Captive (imported) No firm linkage / ow nership (15%), no infrastructure for evacuation (15%)LoA/linkage FSA (NIL); LoA (15%); None (30%)

Offtake mix 20.0% % of capacity tied-up in medium/long term PPA [>85% (NIL), 66-85% (10%), <2/3rd (20%)]Total 100.0%


13

12-mth TP raised to INR69; includes FY15F cash @1.5x to reflect an M&A upside Capturing our revised earnings forecast and a potential M&A upside, we raise our 12-mth TP for the stock by 28% to INR69. Our SOTP-based TP for JSWE includes the FCFE-based value of its 3.4GW generation capacity (3140MW operational + 240MW under-construction) together with transmission and mining JVs [INR52.6] + book value of equity invested in JSW PTC, Chhattisgarh project (1320MW), and JSTL [INR2.0] + FY15F cash on hand valued at 1.5x book to factor in a potential acquisition-linked value accretion [INR14.3]. At INR69, the implied target FY16F multiples are 9.4x P/E and 1.4x P/B. As regards our milestone risk-adjusted FCFE-based value of projects and rationale behind valuing prospective year cash-on-hand at 1.5x book (vs. 1x book previously), note –

• We maintain our cost of equity assumption for JSWE’s coal-fired operational projects at 14%. We continue to value JSWE’s lignite-fired capacity (1080MW at RWPL), Jaigad Transco (transmission JV wherein JSWE holds a 74% stake), and BLMCL (lignite mining JV wherein JSWE holds a 49% effective stake) on an FCFE-basis at 13% cost of equity, as the projects yield a regulated return (i.e., returns on a cost plus basis).

• We peg a 43% milestone risk discount for the Kutehr project (3x80MW) to reflect (1) the absence of offtake tie-ups (PPAs) and financial closure, and (2) land not being fully in possession.

• As construction / development at Chhattisgarh (1320MW) project is in abeyance, we value the equity invested in the project (mostly land) at book value. We continue to exclude 5.5GW capacity under development but in abeyance (660MW Vijayanagar-III, 3200MW Ratnagiri-II and 1620MW Jharkhand).

• JSWE is actively scouting for inorganic growth options in order to capitalize upon its growing FCF and comfortable leverage (1.4x as of FY14). Besides management’s confirmation of looking at M&A options, recent comments by the Government and media reports corroborate that there are ample distressed assets on offer. While the nature, timeline and valuation of any M&A is difficult to assess, theoretical calculations suggest that on if JSWE buys an asset (at book value) which generates an RoE of 17-20% over its project life, translating to an IRR of 16-19%, based on its cost of equity (which we peg at 14% for JSWE), the cash utilized for investment could fetch a multiple between 0.8x-2.4x. Accordingly, we believe 1.5x multiple to FY15F cash-on-hand would, at this stage, reasonably capture the potential upside from an acquisition JSWE may conclude over the next few months.

At 1.6x FY16F P/B and RoE peaking out, valuation multiples appear a bit stretched JSWE’s stock price has doubled over the past 12 months; price performance is amongst the top in the power utilities space over the past six months (up ~60%). We believe the rise in 1-yr fwd P/B multiple from 0.9x to 1.7x over the past 12 months is largely merited – favourable macro earnings drivers (downtrend in seaborne thermal coal prices, relatively small drop in merchant realizations, INR/USD recouping from the lows of 2QFY14), higher interim tariffs and steady-state utilization levels at Barmer project (easing for fuel availability risk) and efficiently utilizing FCF for reducing debt and raising payout while keeping an eye out for inorganic growth opportunities.

At current levels, we note that besides the inorganic growth angle (wherein timeline, valuation and earnings accretion is hard to predict) and potentially neutral ramification from SC’s final verdict on the ongoing coal blocks allocation litigation, RoE is likely to peak out in FY15F as FY15F-17F earnings growth appears negligible and the stock trades at a 1-yr fwd P/B of 1.7x, which is >1SD from its 3-year average. While FY16F RoE would be amongst the highest in the power utilities space, P/B vs. RoE at 1.1x appears a bit stretched considering the sensitivity of earnings to macro, uncontrollable variables. Overall, valuation multiples appear to be adequately pricing in favourable macro drivers and risk reward from current levels is unfavourable, in our view.


14

Fig. 24: JSWE – 1-yr fwd P/E bands Stock currently trades at 10.9x 1-yr forward P/E


Fig. 25: JSWE – 1-yr fwd P/B bands Stock currently trades at 1.7x 1-yr forward P/B


Fig. 26: JSWE – 1-yr fwd P/B vs. RoE P/B spiked up in May-14 on back of improved sector prospects; RoE static


Fig. 27: JSWE – Implied P/B in case of potential M&A An asset generating RoE of 17%-20% can fetch P/B of 0.8x-2.4x

Note: Cost of Equity has been kept at 14% | Source: Bloomberg, Nomura estimates

0

20

40

60

80

100

120

140

160

Dec-09

Mar-10

Jun-10

Sep

-10

Dec-10

Mar-11

Jun-11

Sep

-11

Dec-11

Mar-12

Jun-12

Sep

-12

Dec-12

Mar-13

Jun-13

Sep

-13

Dec-13

Mar-14

Jun-14

6x

18x

15x

12x

9x

(INR)

0

20

40

60

80

100

120

140

160

Dec-09

Mar-10

Jun-10

Sep

-10

Dec-10

Mar-11

Jun-11

Sep

-11

Dec-11

Mar-12

Jun-12

Sep

-12

Dec-12

Mar-13

Jun-13

Sep

-13

Dec-13

Mar-14

Jun-14

1.0x

0.5x

2.5x

2.0x

1.5x

(INR)

4%

9%

14%

19%

24%

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Dec-09

Mar-10

Jun-10

Sep

-10

Dec-10

Mar-11

Jun-11

Sep

-11

Dec-11

Mar-12

Jun-12

Sep

-12

Dec-12

Mar-13

Jun-13

Sep

-13

Dec-13

Mar-14

Jun-14

1 yr fwd RoE (RHS) P/B

If year-1 discount is assumed at 5%S.No. RoE IRR Implied P/B

1 17% 15.9% 0.962 18% 16.9% 1.493 19% 17.9% 2.004 20% 18.9% 2.50

If year-1 discount is assumed at 7%S.No. RoE IRR Implied P/B

1 17% 15.6% 0.822 18% 16.6% 1.343 19% 17.6% 1.854 20% 18.6% 2.36


15

Fig. 28: JSWE – domestic peer group valuation comparison Multiples appear stretched, considering the risk to earnings from macro drivers (currency, merchant tariffs, seaborne thermal coal prices)

Notes: (1) Pricing as of September 02, 2014. (2) NR = Not Rated. (3) RoE calculated in this exhibit is based on normalized earnings, whereas RoE calculated in ‘Summary Financials’ is based on reported earnings. (4) We are reviewing our TP and earnings for RPWR and ADANI

Source: Bloomberg (pricing and consensus forecasts for NR stocks and ADANI), Nomura estimates

Fig. 29: India power utilities – price performance JSWE's stock price performance has been amongst the best in its peer group over the 6 month period; stock has doubled over the past 12-mths

Note: Pricing as of September 02, 2014 | Source: Bloomberg, Nomura research

FY14 FY15F FY16F FY14 FY15F FY16F FY14 FY15F FY16F FY14 FY15F FY16FCoveredAdani Pow er ADANI IN Reduce 2,399 50.7 35.0 NM NM 13.8 2.3 2.1 2.0 NM 7.4 10.5 16.0 8.2 7.1

JSW Energy JSW IN Reduce 2,130 78.8 69.0 13.9 10.9 10.7 2.0 1.8 1.6 14.5 17.0 15.6 6.7 6.1 6.0 Lanco Infra LANCI IN Suspended 347 8.8 n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.aNTPC NTPC IN Buy 19,049 140.2 157.0 10.9 13.2 12.7 1.3 1.3 1.3 13.2 10.1 10.0 9.7 10.4 10.4 Pow er Grid PWGR IN Buy 11,423 132.5 150.0 15.8 13.5 11.6 2.0 1.8 1.7 14.5 14.2 15.0 11.6 10.5 9.5 Reliance Pow er RPWR IN Neutral 3,566 77.2 67.0 22.3 22.0 20.5 1.1 1.1 1.0 5.1 4.9 5.0 26.0 15.6 10.9

Average 15.7 14.9 13.8 1.7 1.6 1.5 11.8 10.7 11.2 14.0 10.2 8.8

Covered @ TP TP (INR) UpsideAdani Pow er 35.0 -31% NM NM 9.5 1.6 1.4 1.4 14.7 7.5 6.5 JSW Energy 69.0 -12% 12.2 9.6 9.4 1.7 1.5 1.4 6.3 5.6 5.5 NTPC 157.0 12% 12.2 14.8 14.2 1.5 1.5 1.4 10.5 11.2 11.2 Pow er Grid 150.0 13% 17.9 15.3 13.1 2.3 2.1 1.9 12.3 11.1 10.0 Reliance Pow er 67.0 -13% 19.4 19.1 17.8 1.0 0.9 0.9 24.5 14.7 10.4

Non coveredCESC CESC IN NR 1,442 700.4 17.8 15.1 10.3 1.6 1.4 1.3 9.1 9.5 12.8 10.2 7.8 5.6 JPVL JPVL IN NR 714 14.8 NM 10.9 6.6 0.7 0.6 0.6 0.5 6.3 9.9 16.3 9.7 6.0 JSPL JSP IN NR 3,620 240.1 11.7 8.8 6.8 1.0 0.9 0.8 8.7 10.4 12.2 9.6 7.5 6.2 KSK KSK IN NR 634 93.2 NM NM 18.2 1.2 1.0 1.0 (5.3) (5.4) 5.5 38.6 18.0 8.3 NHPC NHPC IN NR 3,995 21.9 21.5 10.4 9.5 0.9 0.8 0.8 4.2 7.9 8.2 8.8 7.9 7.6 Tata Pow er TPWR IN NR 3,964 89.0 NM 14.8 12.5 1.9 1.6 1.4 (3.2) 12.0 12.0 7.8 7.0 6.6 Torrent Pow er TPW IN NR 1,078 138.5 NM 22.5 37.4 1.1 1.0 1.1 1.7 4.7 2.1 n.a n.a n.aAverage 17.0 13.8 14.5 1.2 1.1 1.0 2.2 6.5 9.0 15.2 9.6 6.7

Overall average 16.3 14.2 14.2 1.4 1.3 1.2 5.7 8.2 9.9 14.7 9.9 7.7

Price (Local)

Target PriceCompany Ticker Rating

EV/EBITDAROE (%)P/BP/EMkt Cap (US$ mn)

B'berg Market CurrentCompany Ticker Cap ($mn) Ratings Price (INR) 1m 3m 6m 12m YTD CY2013 CY2012BSE SENSEX SENSEX NA NA 27,019 5.0 8.7 27.4 43.1 27.6 9.0 25.7

Private IPPsAdani Pow er ADANI IN 2,399 Reduce 50.7 (9.8) (17.8) 41.8 48.7 30.2 (36.9) (1.2) CESC CESC IN 1,442 NR 700.4 2.8 15.4 45.6 126.4 50.3 46.6 57.8 Indiabulls Pow er IBPOW IN 392 NR 9.0 (23.7) (38.4) 39.5 52.5 9.8 (43.4) 70.6 JPVL JPVL IN 714 NR 14.8 (21.3) (37.6) 7.7 11.7 (22.0) (49.6) 7.0 JSPL JSP IN 3,620 NR 240.1 (12.7) (25.3) (3.1) 5.3 (8.0) (41.7) (1.2) JSW Energy JSW IN 2,130 Reduce 78.8 2.7 6.0 59.2 97.2 39.6 (17.0) 80.1 Lanco Infratech LANCI IN 347 Suspended 8.8 (6.4) (27.1) 37.8 71.6 14.4 (43.5) 42.6 Reliance Pow er RPWR IN 3,566 Neutral 77.2 (16.1) (22.9) 26.4 10.8 5.4 (21.6) 31.6 Tata Pow er TPWR IN 3,964 NR 89.0 (7.6) (15.9) 15.1 24.1 (2.6) (14.2) 26.5 Torrent Pow er TPW IN 1,078 NR 138.5 2.5 (11.9) 68.0 86.5 15.5 (38.0) (1.8) KSK Energy KSK IN 634 NR 93.2 (6.5) (17.4) 71.1 72.8 38.2 11.3 62.6 PSUsNHPC NHPC IN 3,995 NR 21.9 (2.2) (12.7) 22.3 34.8 12.0 (23.2) 41.0 NTPC NTPC IN 19,049 Buy 140.2 (0.8) (14.6) 23.1 7.3 2.3 (12.4) (2.7) Pow er Grid PWGR IN 11,423 Buy 132.5 0.0 5.8 37.8 33.8 32.6 (12.9) 14.6 Satluj Jal SJVN IN 1,571 NR 23.1 (4.0) (9.3) 12.2 19.4 7.7 0.2 12.4

Absolute price performance (%)


16

Appendix A-1

Analyst Certification

I, Anirudh Gangahar, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more Nomura Group companies.

Materially mentioned issuers Issuer Ticker Price Price date Stock rating Sector rating Disclosures JSW Energy JSW IN INR 79 02-Sep-2014 Reduce N/A

JSW Energy (JSW IN) INR 79 (02-Sep-2014) Rating and target price chart (three year history)

Reduce (Sector rating: N/A)

Date Rating Target price Closing price 27-Jun-13 Buy 43.55 27-Jun-13 54.00 43.55 04-Mar-13 Neutral 55.60 04-Mar-13 58.00 55.60 03-Jul-12 45.00 54.65

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology We base our target price for private IPPs, including JSWE, on the milestone risk-adjusted FCFE of operational/feasible projects. We peg our 12-month target price for the stock at INR 69, which is the rounded sum of the company's milestone risk-adjusted FCFE of INR 52.6/share + FY15F cash on hand (at 1.5x book) of INR 14.3/share + book value of investments (in JSTL/PTC/Chhattisgarh project) at INR2.0/share. The benchmark index for this stock is MSCI India. Risks that may impede the achievement of the target price Risks to our investment thesis for JSWE essentially emanate from a positive interplay of key earnings drivers (FoB cost of coal, INR/USD rates, and merchant tariff realizations) over the medium-term, reduction in open-ended coal-fired capacity without a material cut in returns (margins) as fixed cost is low, and substantially earnings-accretive + favourably valued M&A.

Important Disclosures Online availability of research and conflict-of-interest disclosures Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email [email protected] for help.

http://www.nomuranow.com/research�

http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx�

mailto:[email protected]�


17

The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Nomura Global Financial Products Inc. (“NGFP”) Nomura Derivative Products Inc. (“NDPI”) and Nomura International plc. (“NIplc”) are registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report. Any authors named in this report are research analysts unless otherwise indicated. Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Distribution of ratings (Global) The distribution of all ratings published by Nomura Global Equity Research is as follows: 47% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of companies with this rating are investment banking clients of the Nomura Group*. 43% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 54% of companies with this rating are investment banking clients of the Nomura Group*. 10% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 24% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 June 2014. *The Nomura Group as defined in the Disclaimer section at the end of this report. Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America, and Japan and Asia ex-Japan from 21 October 2013 The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock, subject to limited management discretion. An analyst’s target price is an assessment of the current intrinsic fair value of the stock based on an appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated target price, defined as (target price - current price)/current price. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia ex-Japan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as 'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned. Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Target Price A Target Price, if discussed, reflects in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.



18

Disclaimers This document contains material that has been prepared by the Nomura entity identified on page 1 and/or with the sole or joint contributions of one or more Nomura entities whose employees and their respective affiliations are also specified on page 1 or identified elsewhere in the document. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries and may refer to one or more Nomura Group companies including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Nomura International (Hong Kong) Ltd. (‘NIHK’), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (‘NFIK’), Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd. (‘NSL’), Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); Nomura Australia Ltd. (‘NAL’), Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; P.T. Nomura Indonesia (‘PTNI’), Indonesia; Nomura Securities Malaysia Sdn. Bhd. (‘NSM’), Malaysia; NIHK, Taipei Branch (‘NITB’), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited (‘NFASL’), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111; CIN No : U74140MH2007PTC169116, SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034) and NIplc, Madrid Branch (‘NIplc, Madrid’). ‘CNS Thailand’ next to an analyst’s name on the front page of a research report indicates that the analyst is employed by Capital Nomura Securities Public Company Limited (‘CNS’) to provide research assistance services to NSL under a Research Assistance Agreement. THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED UPON INFORMATION FROM SOURCES THAT WE CONSIDER RELIABLE, BUT HAS NOT BEEN INDEPENDENTLY VERIFIED BY NOMURA GROUP. Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable and does not accept liability for any act (or decision not to act) resulting from use of this document and related data. To the maximum extent permissible all warranties and other assurances by Nomura group are hereby excluded and Nomura Group shall have no liability for the use, misuse, or distribution of this information. Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including the opinions and estimates contained herein, are subject to change without notice. Nomura Group is under no duty to update this document. Any comments or statements made herein are those of the author(s) and may differ from views held by other parties within Nomura Group. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Nomura Group does not provide tax advice. Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal, agent, or otherwise, or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other derivative instruments based thereon, of issuers or securities mentioned herein. Nomura Group companies may also act as market maker or liquidity provider (within the meaning of applicable regulations in the UK) in the financial instruments of the issuer. Where the activity of market maker is carried out in accordance with the definition given to it by specific laws and regulations of the US or other jurisdictions, this will be separately disclosed within the specific issuer disclosures. This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproduction and distribution of third-party content in any form is prohibited except with the prior written permission of the related third-party. Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third-party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third-party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice. Any MSCI sourced information in this document is the exclusive property of MSCI Inc. (‘MSCI’). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates. Russell/Nomura Japan Equity Indexes are protected by certain intellectual property rights of Nomura Securities Co., Ltd. and Russell Investments. Nomura Securities Co., Ltd. and Russell Investments do not guarantee the accuracy, completeness, reliability, or usefulness thereof and do not account for business activities and services that any index user and its affiliates undertake with the use of the Indexes. Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Nomura Group produces a number of different types of research product including, among others, fundamental analysis and quantitative analysis; recommendations contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of differing time horizons, methodologies or otherwise. Nomura Group publishes research product in a number of different ways including the posting of product on Nomura Group portals and/or distribution directly to clients. Different groups of clients may receive different products and services from the research department depending on their individual requirements. Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future performance. Where the information contains an indication of future performance, such forecasts may not be a reliable indicator of future performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect the future distribution of returns. Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment. The securities described herein may not have been registered under the US Securities Act of 1933 (the ‘1933 Act’), and, in such case, may not be offered or sold in the US or to US persons unless they have been registered under the 1933 Act, or except in compliance with an exemption from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be executed via a Nomura entity in your home jurisdiction. This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. NIplc is a member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning of applicable

http://dis.kofia.or.kr/�


19

regulations in the UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This document is intended only for investors who are 'eligible counterparties' or 'professional clients' for the purposes of applicable regulations in the UK, and may not, therefore, be redistributed to persons who are 'retail clients' for such purposes. This document has been approved by NIHK, which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been approved for distribution in Australia by NAL, which is authorized and regulated in Australia by the ASIC. This document has also been approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSL accepts legal responsibility for the content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients who are not accredited, expert or institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this document in Singapore should contact NSL in respect of matters arising from, or in connection with, this document. Unless prohibited by the provisions of Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. The entity that prepared this document permits its separately operated affiliates within the Nomura Group to make copies of such documents available to their clients. This document has not been approved for distribution to persons other than ‘Authorised Persons’, ‘Exempt Persons’ or ‘Institutions’ (as defined by the Capital Markets Authority) in the Kingdom of Saudi Arabia (‘Saudi Arabia’) or 'professional clients' (as defined by the Dubai Financial Services Authority) in the United Arab Emirates (‘UAE’) or a ‘Market Counterparty’ or ‘Business Customers’ (as defined by the Qatar Financial Centre Regulatory Authority) in the State of Qatar (‘Qatar’) by Nomura Saudi Arabia, NIplc or any other member of Nomura Group, as the case may be. Neither this document nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than those authorised to do so into Saudi Arabia or in the UAE or in Qatar or to any person other than ‘Authorised Persons’, ‘Exempt Persons’ or ‘Institutions’ located in Saudi Arabia or 'professional clients' in the UAE or a ‘Market Counterparty’ or ‘Business Customers’ in Qatar . By accepting to receive this document, you represent that you are not located in Saudi Arabia or that you are an ‘Authorised Person’, an ‘Exempt Person’ or an ‘Institution’ in Saudi Arabia or that you are a 'professional client' in the UAE or a ‘Market Counterparty’ or ‘Business Customers’ in Qatar and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the UAE or Saudi Arabia or Qatar. NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II) REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF A MEMBER OF NOMURA GROUP. If this document has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this document, which may arise as a result of electronic transmission. If verification is required, please request a hard-copy version. Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls and employee training. Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx Copyright © 2014 Nomura International (Hong Kong) Ltd. All rights reserved.


JSW Energy - Myirisbreport.myiris.com/NFASIPL/JSWENERG_20140903.pdf · We downgrade our rating on...

Documents

Transcript of JSW Energy - Myirisbreport.myiris.com/NFASIPL/JSWENERG_20140903.pdf · We downgrade our rating on...