JSWEnergy Hedge 090511

8/6/2019 JSWEnergy Hedge 090511

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COMPANY RESEARCH REPORT October 28, 2

COMPANY RESEARCH REPORTINITIATING COVERAGE

JSW ENERGY LIMITED

RECOMMENDATION: BUY

CMP: Rs. 71

TARGET: Rs. 95

HOLDING PERIOD: 1-1.5 Years

RISK PROFILE: AGGRESSIVE

2011


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INITIATING COVERAGE- BUY : JSW ENERGY LT

In a sweet spot due to structural deficitPower sector plays crucial role in the economic progress of the

country given the importance of electricity in the economic

activity. Currently, at the end of Jan 2011, the power generation

capacity stood at 170.229 GW including the renewable energysources such as wind, solar etc. of about 16.787GW. However the

peak power deficit in Jan 2011 is 11.1% and the normal power

deficit is 7.6%. Rapid growth of the economy will place a heavy

demand on electric power.

Operative capacity to ramp up at a CAGR of 58%JSW energys capacity additions are in full swing with the total

operative capacity reaching 6570MW by FY2017 against the

management guidance of 12070 MW. We are very conservative in

this regard, considering the potential execution delay.

Potential improvement in margin aheadThe companys margin had affected notably when the fuel cost

(coal) went up recently. In FY09 and FY11, the fuel cost per unit

reached at high levels i.e. Rs.3.02 and 2.63 respectively. The

probable cooling off of the coal prices can bring up the margin.

Moreover, the coal mines acquisitions which have been in full

swing, when completes, also, would bring down the fuel cost.

Outstanding realizations among the peers despite

concerns.

The company has been maintaining good realization/unit ofelectricity, compared to the peers. ARPU (average realization per

unit) remains in the range of Rs. 4.48 in FY08 to Rs. 4.49 in FY11.

The same is estimated at Rs.4 for FY12E.

Outlook and Valuations: Attractive; Initiate Coverage

with BUYWe estimate units generated to post a CAGR of 99% from FY10-

12E on the back of gigantic capacity build up and an average PLF

of 0.75. Accordingly, the top line and bottom line, too, are

estimated to grow at a CAGR of 87.8% and 33.9% respectively

during the period. Our DCF model with 11.8% discount rate valuesthe company at Rs.95 per share. We initiate coverage with a BUY

recommendation for a target price of Rs.95. Those with an

aggressive risk appetite can consider investing in JSW energy at

current level.

Sector: Power

Generation/Distribution

EPS (TTM): Rs.5.13

PE (TTM): 14.17

Industry PE: 21.41

Mkt. Cap (In crores): 11931.4

52 Wk high: Rs.136.3

52 Wk low: Rs.68.55P/BV: 2.10

Beta: 0.76

Yield (%): 1.03

Face Value: 10

Debt/Equity: 1.65

Foreign Institutional

Holding:

3.94%

Shareholding Pattern (%)

Total of Promoter and Promoter Group 7

Public Shareholding:

Institutions 9

Non-Institutions 1

Total Public Shareholding 2

0.00

5000

1000

1500

2000

2500

0.00

50.00

100.00

150.00

01-A

r-10

13-Ma-10

22-Jun-10

30-Jul-10

08-Sep-10

19-Oct-10

29-Nov-10

07-Jan-11

17-Feb-11

30-Mar-11

JSWE vs Sensex

JSW Energy SENSEX

NSE Code: JSWENERGY

BSE Code: 533148

ISIN Code: INE121E01018

Reuters Code: JSWE.BO

Bloomberg Code: JSW IN

Website: www.jsw.in


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INITIATING COVERAGE- BUY : JSW ENERGY LT

Contents

Business Summary .....................................................................................................................................................................

Power Generation: .................................................................................................................................................................

Power Trading: .......................................................................................................................................................................

Power Transmission: ..............................................................................................................................................................

Equipment manufacture and Mining: ....................................................................................................................................

JSW Energy Projects Update ...................................................................................................................................................

Investment Rationale .................................................................................................................................................................

Industry ......................................................................................................................................................................................

Financials & Valuations ..............................................................................................................................................................

Sensitivity Analysis .....................................................................................................................................................................

Risks ...........................................................................................................................................................................................

Financial Highlights ....................................................................................................................................................................

Financial Ratios ..........................................................................................................................................................................

Financials Graph and Peer Group Comparison ..........................................................................................................................

Analyst Notes And Company News ............................................................................................................................................
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INITIATING COVERAGE- BUY : JSW ENERGY LTD

1 May 3, 2011

Chief among various reasons for

this impressive performance is

the exceptionally high PLF (Plant

Load Factor) of the plant.

Business Summary

JSW Energy Ltd (JSWEL) is a fast growing power services comp

that is part of the prestigious, $4 Billion valued Jindal South W

(JSW) group. The group has diversified interests in areas rangfrom steel, energy, minerals and mining, aluminum, infrastruc

and logistics, cement and information technology. Formed in

year 1994, as a joint venture between the JSW group and Tract

S.A. of Belgium, JSW Energy commenced operations in the y

2000 as an Independent Power Producer (IPP), setting up a

MW power generating unit. The company has the distinction

being the first Independent Power Producer (IPP) to set

operations in the state of Karnataka, initially installing 2 unit

130 MW each, with both units generating power using corex

and coal. Currently most of its revenue is derived from po

generation. It is the goal and strategy of the company to becom

leading full-service integrated power company in the Indian po

sector with presence across the value chain i.e. both with backw

integration and forward integration. As part of that strategy

with the aim of managing sustainable growth and reducing pote

constraints on such growth, it has entered into various j

ventures for the development of transmission lines for its po

generation projects, coal and lignite mining to procure captive

supply for certain of its power generation projects and

manufacture of steam turbines and generators for power plant

is currently exploring opportunities in coal mine acquisitions, podistribution business and generation through non-conventi

energy sources.

Power Generation: The power generation business is with

doubt the mtier of JSW Energy, averaging around 83% of the t

sales for the last 5 years (FY06-FY10). The company has a ra

strong expertise in this area, having been involved in the busin

since 2000. For a considerable period of time (till FY09),

company source of power generation was limited to its 260 MW

X 135 MW) unit in Vijaynagar, Karnataka (JSWEL SBU 1). Throthis plant alone, the firm was able to generate income to the t

of Rs. 1240 crores (in FY09). The Plant Load Factor is the rat

actual units of power generated by a plant, to the maximum po

that could theoretically be generated by the power plant during

contract period.

JSW energy, already, has

presence in coal mining,

equipment manufacturing,

Transmission and power

trading and, now, is aiming to

enter distribution. Currently,

major chunk of the revenue is

derived from power

generation. It is the goal and

strategy of the company to

become a leading full-service

integrated power company in

the Indian power sector with

presence across the value

chain i.e. both with backward

and forward integration. .


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2 May 3, 2011

The second units of Barmer

project (135MW) and Ratnagiri

project (300MW) have got

commercial operation dates

during FY11 to take the total

operative capacity to 1430 MW.

The power is sold to state utility

boards through short-term

power off take arrangements,

where the price is subject to

rapid market demand

luctuations

In July 2009, the company added to its power generatio

portfolio by commencing the first of its 600 mw (1 X 300 MW

coal plant (JSWEL SBU II). This plant too is located in Vijaynaga

The second unit (2 X 300 MW) was operationalized in Septemb

2009. In November 2009, the firm also started operations of thfirst unit of its 1080 MW ( RWPL 1 X 135 MW) lignite power pla

in Barmer, Rajasthan, taking the total capacity to 995 mw by t

end of fiscal year 2010. And in FY11, the second units of Barm

project (135MW) and Ratnagiri project (300MW) have g

commercial operation dates (COD) to take the total operati

capacity to 1430 MW. JSWELs big aim is to reach a targ

capacity of 11390 MW by 2015. As of now, the company has

1430 MW of operational generating capacity and 1490 MW

generating capacity in the construction or implementation phas

As far as it sales are concerned, the company secures its powgeneration revenues through a combination of long term PPA

(Power Purchase Agreements) and short term merchant pow

sales with various state-owned utilities (SEBs), power tradin

companies and industrial consumers.

Power Trading: The Company has been in the power tradin

business since 2006 and it is carried out by its subsidiar

JSWPTC (JSW Power Trading Corporation). The Central Electrici

Regulatory Commission (CERC) has granted the company with a

F category license, the highest license in India, for pow

trading. JSWPTC sells power of not only the JSWEL but fro

external power supplies as well. The power is sold to state utili

boards through short-term power off take arrangements, whe

the price is subject to rapid market demand fluctuations. Th

time period of these short-term arrangements ranges fro

several hours to 11 months.

Power Transmission: Power transmission is another powrelated area that the firm has been involved in, rendered throug

yet another subsidiary JSWPTL (JSW Power Transco Limited). T

other partner in the venture is the government unit-MSETC

(Maharashtra State Electricity Transmission Company Limited

Through its transmission lines the company transmits power fro

power generation units to state and national grids.


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3 May 3, 2011

Equipment manufacture and Mining: Equipm

manufacture and mining activities make up the remaining par

the companys business. Both these activities are condu

through joint ventures. In 2008, JSWEL signed a deal with Japan

conglomerate- Toshiba Corporation, for the design, engineer

manufacturing, assembling and sale of sub-critical and su

critical steam turbines and generators with capacities ranging f

500MW to 1000MW. However JSWELs stake in the venture is

20% so it is not expected to contribute much in terms of cost no

Project Place Fuel Capacity(MW)

Expectedoperational

year

Ratnagiri I MaharashtraSub critical imported

coal1200 FY12

Rajwest I Rajasthan Lignite 1080 FY12

Kutehr Hydro Project Phase IHimachal

PradeshHydro power 80 FY14

Ratnagiri II Phase I MaharashtraSub critical imported

coal800 FY14

West Bengal Power project

Phase IWest Bengal Coal 300 FY15

Rajwest Power Ltd. II Phase I Rajastan Lignite 135 FY15

Ratnagiri II Phase II MaharashtraSub critical imported

coal800 FY15

Chattisgarh Power project

Phase IChattisgarh Coal 660 FY16

Ratnagiri II Phase III MaharashtraSub critical imported

coal800 FY16

Kutehr Hydro Project Phase IIHimachal

PradeshHydro power 80 FY16

Rajwest Power Ltd. II Phase II Rajasthan Lignite 135 FY17

JSWEL Vijayanagar Karnataka Sub critical coal 660 FY17

Ratnagiri II Phase IV Maharashtra Sub critical importedcoal

800 FY17

Source: JSWEL, Hedge Research

In 2008, JSWEL signed a deal

with Japanese

conglomerate- Toshiba

Corporation, for the design,

engineering, manufacturing,

assembling and sale of sub-

critical and super-critical

steam turbines and

generators.

JSW Energy Projects Update


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4 May 3, 2011

The attempts of the company

or acquiring a couple of coal

mines abroad are in full

swing. The Company had

acquired a majority stake in

SACMH (South African Coal

Mining Holding Ltd) in 2009.

will it benefit much in terms of revenue. Production under Pha

would commence in 2011 and initially, the unit would prod

steam turbine and generator (STG) parts. By 2012, it would s

manufacturing STG sets with a target production capacity of 3

mega watt per annum by 2014. The JV is targeting sales of $million (around Rs 1,840 crore) only by the end of 2015 fiscal.

companys mining activities are conducted in the state

Maharashtra and Orissa. The Maharashtra mining activity is car

out for the purpose of securing lignite for the (8X 135 MW) 1

mw lignite plant in Ratnagiri, Maharashtra.

Investment Rationale

The key facts which make the stock a flattering one are:

1) A potential margin outlook supported by the coal macquisitions which will eventually bring in the fuel prices (fuel c

comprise more than 70% of the total expenditure book) u

control. In the near future, the margins are expected to go up o

coal prices come down from the current exorbitant lev

Meanwhile, in the long run, the company is expected to ben

from the progressing coal mine acquisitions at the internati

level, as the price determination will come under the control of

company.

2) The business integration model (Both backward integra

and forward integration) that the company aiming for makes

unique one. The processes of combining different business

management systems so that they may interact with one ano

and thus be used to enhance an enterprise business strategy

respect of the backward integration, fuel security and tur

manufacturing are the areas to be possessed, which have alre

been initiated by the company. The attempts of the company

acquiring a couple of coal mines abroad are in full swing.

Company had acquired a majority stake in SACMH (South Afr

Coal Mining Holding Ltd) through acquisition of shares in R

Bafokeng Capital (RBC) and the shares of Mainsail which holdsadditional 5% in SACMH. SACMH is a listed South African Comp

with coal mining assets in the Witbank region with mines in Ulam

and Illanga. The mines have reserves of about 50 million ton

with exportable surplus in the range of 14-20 million ton

Besides, SACMH has allocations in RBCT Phase V of about

million tpa as also coal preparation plant and railway siding at

mine site.

In the outlook, the margins are

expected to go up once coal

prices come down from the

current exorbitant levels


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5 May 3, 2011

Despite the augmented

generation in the country, the

energy deficit, as on Q4FY11,

igured at 13.8%.

Regarding the forward integration, electricity transmission an

distribution are the targeted areas, of which JSW has entered th

former and is sketching to the latter through diversified range joint venture agreements and subsidiaries.

3) Company is aggressively in the path of ramping up

electricity generation capacity, which is, currently, stands at a

operative 1730MW with the commissioning of 2nd phase

Ratnagiri plant. It is expected to add a further 2880MW operativ

capacity to take the total figure at 4310MW. Apart from tha

there are some projects in pipeline which are expected to

operational beyond 2015. When we take these projects also in

account, the capacity will touch 6570MW by the fiscal 2017.

4) The huge disparity in the demand and supply of power

the country: Despite the augmented generation in the country, t

energy deficit, as on Q4FY11, figured at 13.8%. As on Dec 20

the total energy deficit was at 10.1%. The mismatch between t

two is unlikely to narrow immensely in the future as the growth

the demand is expected to shoot up in a gigantic way and t

capacity acceleration will not be sufficient to meet it.

JSW Energy Ltd

Backward Integration

MiningEquipmentManufactu

ring

Forward Integration

Transmission

PowerTrading

Distribution(Targeting)

There are some projects in

pipeline which are expected to

be operational beyond 2015.

When we take these projects

also into account, the capacity

will touch 6570MW by the

fiscal 2017.


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6 May 3, 2011

Though new generation capacity

addition so far in the current five

year plan period is greater than

what it was achieved in each of

earlier plans, the country is all

expected to fall short of its revised

11th five year plan.

Industry

Power sector plays crucial role in the economic progress of th

country given the importance of electricity in the econom

activity. Rapid growth of the economy will place a heavy deman

on electric power. Reforms in this sector, for making the pow

sector efficient and more competitive, have been under way f

several years and while there has been some progress, shortag

of power and lack of access continues to be a major constraint o

the economic growth. Currently, at the end of March 2011, tpower generation capacity stood at 173.626 GW including th

renewable energy sources such as wind, solar etc. of abo

16.787GW. However the peak power deficit in Jan 2011 is 11.1

and the normal power deficit is 7.6%. With the country's pea

power demand (as on Jan 2011) being 122.470 GW well belo

the country's current generation capacity, the lower plant loa

factors on account of scarcity of fuel/feedstock or less efficie

aged power plants as well as high T&D losses and season

nature of renewable power capacity. So far in the 11th five ye

plan period (2007-08 to 20011-12) the country has added abo

37.900 GW of which about 9.026 GW was renewable energ

Though new generation capacity addition so far in the curre

five year plan period is greater than what it was achieved in eac

of earlier plans, the country is all expected to fall short of i

revised 11th five year plan target to about 63GW.

170

82.2852.53

35.19

Total

installed

capacity

State

sector

Central

sector

Private

sector

Source: JSWEL, Hedge Research

0

1000

2000

3000

4000

5000

6000

7000

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Expected Operative Capacity Build up

(in MWs)


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7 May 3, 2011

The originally envisaged target

or current five year Plan at the

start of the plan period was 78

GW and was later revised to

62,374 MW. Capacity addition

of 32,032 MW was only

achieved till December 31,2010. At the end of the plan,

only 50000 MW is likely to be

added. Meanwhile, the Power

Ministry has set a target of

100,000 MW of power capacity

addition in the upcoming

Twelfth Plan (2012-17).

Source: CEA

The double digit peak power deficit is largely on the cyclic

slowdown in the industrial sector which began in fiscal 2008 g

compounded by the global slowdown and was arrested only at t

beginning of fiscal 2010. In the fiscal 2010, electricity generatio

emerged from the lackluster growth witnessed in fiscal 2009 anequaled its performance in fiscal 2008. This was achieved despi

constraints imposed by inadequate availability of coal and th

dismal hydel-generation scenario due to sub-normal monsoo

During fiscal 2010, the total energy deficit came down to 10.1

from 11% during the fiscal 2009, mainly due to increase

electricity generation. The availability of gas from the KG bas

(D6) resulted in better utilization of capacity and higher Pla

Load Factor (PLF) as high growth in electricity generated from g

based plants.

The originally envisaged target for current five year Plan at t

start of the plan period was 78 GW and was later revised

62,374 MW. Capacity addition of 32,032 MW was only achieve

till December 31, 2010. At the end of the plan, only 50000 MW

likely to be added. This is largely on account of environment

issues as well as delay in coal linkages etc apart from equipme

supply delays. Meanwhile, the Power Ministry has set a target

100,000 MW of power capacity addition in the upcoming Twelf

Plan (2012-17) (2012-13 to 2016-17), of which the share

thermal power being 76.6 GW, hydel power being 20 GW an

Nuclear at 3.4 GW. In the 12th five year plan period the countis envisaging a technology transition with embrace of sup

critical technology in a bigger way. Though super critic

technology projects were introduced in the 11th five year pla

period in a smaller way, the share of super critical technology

all set to increase to 59% (or 43640 MW) of the coal generatio

capacity in the 12th five year plan.

On one hand with rising demand for electricity as double dig

peak demand, the sector is faced with numerous challenges su

fuel availability, poor financial conditions of state electriciboards as well as various project risks ranging from funding

environmental etc. The greatest weakness is on the distributio

front which is entirely the domain of the States. AT&C losses

most of the State Power Utilities (SPUs) remain as high as 40

and this has made them financially sick and unable to inve

adequately in additional generating capacity.

111034

456037367

16787

169748

19509

Indian Energy sources


11/21


8 May 3, 2011

The greatest weakness is on the

distribution front which is entirelyunder the domain of the States.

AT&C losses of most of the State

Power Utilities (SPUs) remain as high

as 40%.

Merchant power sales are estimated

on an average of 66% for FY11-12E.

Source: JSWEL, Hedge Research, Ace Equity

For the same reason, these utilities have had only limited succ

in attracting private investors to set up power plants. The Cen

with a view to encouraging generation and reducing transmis

and distribution losses, announced extension of tax holiday for

power sector by one more year till March 31, 2012. The extensof tax break is part of the government's efforts to scale up

power generation capacity to meet the growing needs. The

exemption would benefit projects that are expected to take of

the remaining period of the XI Plan (2007-12), including u

mega power projects (UMPPs).

Financials & Valuations

Top line to grow at a CAGR of 99%

The financials look impressive with both the topline and bottom

inching up by 49% and 46% respectively. The FY10 seems to b

resumption of growth for the company from the badly affec

financial figures of FY09. In FY09, while the top line remained

the profit after tax saw a decline of 32.46%, which was mainly

account of a surge in the fuel cost. The FY11 financials, too, h

been decent with the sales shooting up by 82%. Going forw

we expect, in accordance with the capacity ramp up, the top lin

grow at a CAGR of 99% during FY10-12E.

Balanced Sales mix

JSW Energy, unlike others, has a more or less balanced mix

merchant power and Power purchase agreements (PPAs) in

sales portfolio. The former to total sales were 68%, 61% and 7

respectively for FY08, FY09 and FY10 respectively. The sam

estimated to be averaged at 66% for FY11-12E. The PPAs (Po

Purchase Agreements) and short term merchant power sales

with various state-owned utilities (SEBs), power trading compa

and industrial consumers like West Bengal Mineral Trading Development Corp (WBMTDC), Government of Chhattisg

(GoCG) etc

0

2000

4000

6000

8000

10000

Revenue Break up

Revenues

PBIDT

PBDT

PBT

PAT


12/21


9 May 3, 2011

Source: JSWEL, Ace Equity, Hedge Research

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E

Short term sales 0 833 1527 1425 1259 3671.41 6004 13600.12

Long term sales 1826 1071 386 643 797 1499.59 3012 7006.125

0

5000

10000

15000

20000

25000

MillionUnits(Kwh)

Yearwise Sales Mix

Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Short term sales 374 300.44 416.8 859.81 1203.0 1217.8 1260.6 1139.8 1605.3 2013

Long term sales 159 217.56 104.2 351.19 444.96 573.12 566.37 641.16 790.68 1000

0

500

1000

1500

2000

2500

3000

3500

Million

Units(Kwh)

Quarterwise Sales Mix


13/21


10 May 3, 2011

We expect the average

realization to be Rs.4 for

FY12E.

Though there is a potential

or marginal upside

movement in the coal price,

it is not likely to affect our

valuation significantly as

we have factored in the

same at the current higher

levels.

Realization to endure at reasonable levels despite the concern

Since the short term sales put in higher realization for the compa

the higher proportion of short term sales translates into the bet

average realization, which stood at Rs.4.44 in FY10 and has behovering in a range of Rs. 4 -4.5. We expect the same to remain at

4 for FY12E.

Source: JSWEL, Hedge Researc

No significant room for change in our valuation by fuel cost

The fuel cost has been skyrocketed to a higher level in the

couple of years and now stands in $120-$130/ton range. Thou

there is a potential for marginal upside movement in the price, i

not likely to affect our valuation significantly as we have factored

the fuel cost at higher levels. Fuel cost has been one of m

sensitive factors to the stock. Thermal coal is the largest source

energy for the generation of electricity worldwide. The price of chas been buoyed by flooding in Australia's coal-rich state

Queensland, which interrupted supplies from the world's top therm

coal exporter. Huge demand for energy resources in China and In

has pushed the price of thermal coal to an all time high.

4.48

6

4.44

5.09

4.34 4.43 4.24.49

4

5.25

7.08

4.97

5.77

4.654.87

4.5

4.95

4.36

3.413.59 3.59 3.63

3.3

FY08 FY09 FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 FY11 FY12E

Average Realisation/Unit Short term Realisation/Unit Long term realisation


14/21

INITIATING COVERAGE- BUY : JSW ENERGY L

11 May 3, 201

We see the fuel cost per

unit for FY11E and FY12E to

be Rs. 2.73 and 2.48

respectively

Having accounted for theskyrocketed coal price, the

profits is expected to grow

at a CAGR of 34% during

FY10-FY12E

Source: JSWEL, Hedge Research, Ace Eq

The fuel cost per unit of the company has been quite vol

since FY08. As the company is highly depending on coal as f

the fuel cost/unit had shot up to an all time high of Rs.3.0

FY09 on account of the surge in the international coal pric

$125/ton in FY09. It, then, came down and bounced back in F

and FY11 respectively. We see the same for FY12E as Rs.2.48

Profit to post growth at a CAGR of 34%

With the surge in the coal price and other components in

expenditure book, the EBITDA and PAT growth confined to

tune of 32% and 13% respectively for FY11 to touch Rs.1

crore and 842 crore respectively. Having accounted for

skyrocketed coal price, the profits are expected to grow a

CAGR of 34% during FY10-FY12E, driven by a gigantic ramp u

the capacity and consistent realization ra

Discounted cash flow values the stock at Rs.95 per share

Our valuation model based on discounted cash flow give

value of Rs.95 per share to JSW energy. It has 33.8% ups

from the current market price of Rs.71. we have used a disco

rate of 11.8% for the model.

0

0.5

1

1.5

2

2.5

3

3.5

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E

Fuel cost per unit


15/21


12 May 3, 201

Sensitivity Analysis

It has been found from our analysis that JSW energy is very sensitive to

factors like coal price, plant load factor and realization per unit (ARPU). We h

done a sensitivity analysis of share price to those factors.

Average Realization per Unit

Coal Price

@58003.75 4 4.25 4.5

PLF

0.70 16 52 89 125

0.75 56 95 133 172

0.80 95 137 178 220

0.85 135 179 223 267

Taking the coal price constant at Rs.5800/ton, PLF between 70% and 80% andARPU between Rs.3.75 and 4.5, the stock is found to have potential to move

the range of Rs.16 to 267.

Average Realization per Unit

Load Factor

@0.753.75 4 4.25 4.5

CoalPrice 5200 91 130 169 207

5500 73 112 151 190

5800 56 95 133 172

6200 32 71 110 149

When we consider the plant load factor at 75%, the coal price between Rs. 52

and 6200/ton and the ARPU in the range of Rs.3.75 and 4.5, the stock could

move amid Rs.91 and 149.

Coal Price

ARPU @4.00 5200 5500 5800 6200

P

LF

0.70 88 70 52 29

0.75 130 112 95 71

0.80 172 155 137 113

0.85 215 197 179 156

Also, we also found that the stock may move in the range of Rs.88 and 156

when we take the ARPU at Rs.4, PLF in the range of 70% to 85% and the coal

price between Rs.5200 and 6200/ton.


16/21


13 May 3, 201

Due to environmental

concerns, Indias annual

thermal coal production

growth is slowing to 1-2

per cent now from 6-7 per

cent earlier.

Risks

But among all these, the sector reels under certain major issu

which act as a bottleneck for the growth of the industry. JS

Energys earnings and stock valuations are highly sensitive availability of coal and its prices, given that about 46 per cent of

planned capacity, about 11,390 Mw, is dependent on import

coal. Fuel availability and its high leveled price is the chief proble

that the company faces, which further puts brakes on the pl

process. Thermal coal a key input for power generation h

become costly in the global markets in the recent months. Sup

constraints for domestic coal remain and are expected to contin

going forward. Further, industry estimates suggest that dema

from China and India could hold the price at current levels or mo

In the long run, given the nuclear crisis in Japan, any increase

preference towards coal-based power plants would only lead

further pressure on coal prices. The situation could have be

better, had the supply of domestic coal (which costs less) be

sufficient. Due to environmental concerns, Indias annual therm

coal production growth is also slowing to 1-2 per cent now fr

6-7 per cent earlier. Recently, Coal India lowered its product

growth to 3 per cent. Since domestic coal supply constrai

remain to continue, some public and private sector entities ha

embarked upon imported coal as a means to bridge the deficit. T

has led to some Indian entities to take upon the task of purchasi

developing and operating coal mines in international geographiWhile this is expected to secure coal supplies it has again thro

upon further challenges. The failure to achieve the planned targ

from the captive coal blocks presents itself as a major challenge

the power sector, as only 24 blocks have become operational out

the total 210. Experts believe that the non-operational status

majority of these blocks is attributed to land acquisition (R&

issues, permit delays and infrastructure problems.

Declining merchant power realization rates, too, stand as anoth

concern as almost 67 per cent of JSWs current capacity caters

merchant power sales. The rate is always competitive and bound

volatile. Hence, though it remains well above the PPA rate, t

inability to lock in the cost and the downward trend of t

merchant rate are seemed to be the key concerns for the compa


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14 May 3, 201

Financial Highlights

DESCRIPTION Mar-10 Mar-09 Mar-08

Inc / Exp PerformanceGross Sales 2355.09 1835.02 1293.14

Total Income 2429.26 1852.16 1326.07

Total Expenditure 1141.61 1303.17 416.68

PBIDT 1287.65 548.99 909.39

PBIT 1151.55 488.78 850.79

PBT 867.85 367.84 762.24

PAT 745.49 276.69 625.27

Cash Profit 881.59 336.90 683.87

Sources of Funds

Equity Paid Up 1640.05 546.57 514.76

Reserves and Surplus 3138.47 932.14 488.87

Net Worth 4778.52 1478.71 1003.63

Total Debt 7870.14 5927.16 2272.66

Capital Employed 12665.56 7422.03 3365.30

Application of Funds

Gross Block 3683.89 1169.07 1139.60

Investments 1434.44 170.47 20.73

Cash and Bank balance 604.82 175.10 294.94

Net Current Assets -267.83 -1226.23 0.65

Total Current Liabilities 1900.64 1766.19 502.82

Total Assets 12665.56 7422.03 3365.30Cash Flows

Cash Flow from Operations 846.96 468.31 801.19

Cash Flow from Investing activities -3582.31 -4045.99 -2251.08

Cash Flow from Finance activities 4386.14 3461.84 1467.31

Free Cash flow -2422.29 -3540.36 -1604.85

Market Cues

Close Price (Unit Curr.) 111.80 0.00 0.00

High Price (Unit Curr.) 123.90

Low Price (Unit Curr.) 99.90

Market Capitalization 18335.76 0.00 0.00

Adjusted EPS 4.55 2.02 4.86

Price / Book Value(x) 3.84 0.00 0.00

CEPS 5.38 2.47 5.31

Equity Dividend % 7.50 0.00 20.00

Source: Ace Equity


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15 May 3, 201

Financial Ratios

Description Mar-10 Mar-09 Mar-08

Operational & Financial Ratios

Earnings Per Share (Rs) 4.55 5.06 12.15

Adjusted EPS (Rs.) 4.55 2.02 4.86

CEPS(Rs) 5.38 2.47 5.31

DPS(Rs) 0.75 0.00 2.00

Adj DPS(Rs) 0.75 0.00 2.00

Book Value (Rs) 29.14 27.05 19.50

Adjusted Book Value (Rs) 29.14 10.82 7.80

Tax Rate(%) 14.10 24.78 17.97

Dividend Pay Out Ratio(%) 16.50 0.00 16.47Margin Ratios

PBIDTM (%) 54.68 29.92 70.32

EBITM (%) 48.90 26.64 65.79

Pre Tax Margin(%) 36.85 20.05 58.94

PATM (%) 31.65 15.08 48.35

CPM(%) 37.43 18.36 52.88

Performance Ratios

ROA (%) 7.42 5.13 18.58

ROE (%) 23.83 22.29 62.30

ROCE (%) 11.47 9.06 25.28

Asset Turnover(x) 0.23 0.34 0.38

Inventory Turnover(x) 11.67 58.89 43.03

Debtors Turnover(x) 11.54 17.80 18.66

Sales/Fixed Asset(x) 0.97 1.59 1.13

Sales(x)/Working Capital -8.79 -1.50 0.00

Growth Ratios

Net Sales Growth(%) 28.34 41.90

Core EBITDA Growth(%) 134.55 -39.63

EBIT Growth(%) 135.60 -42.55

PAT Growth(%) 169.43 -55.75

EPS Growth(%) -10.21 -58.32

Financial Stability Ratios

Total Debt/Equity(x) 1.65 4.01 2.26

Current Ratio(x) 0.93 0.31 1.32

Quick Ratio(x) 0.72 0.29 1.24

Interest Cover(x) 4.06 4.04 9.61

Source: Ace Equity


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16 May 3, 201

Financials Graph and Peer Group Comparison

Source: Multiple Sources

Peer Group Comparison (Consolidated)

Company NameYearEnd

Net Sales PBIDT PATAdj.

EPS(Rs)PBIDTM% PATM% ROCE% ROE%

Rel.Power 201003 20.72 717.03 683.89 2.85 3459.98 0 4.47 4.84

Tata Power 201003 18985.84 4442.08 2138.64 82.91 23.38 11.26 12.54 19.74

NTPC 201003 48311.5 16021.7 8837.7 10.72 32.98 18.19 12.64 14.73

Adani Power 201003 434.86 275.74 170 0.78 63.41 39.09 2.02 4.22

NHPC 201003 5227.32 4783.17 2277.56 1.77 91.5 43.57 8.52 10.15

Source: Ace Equity

Revenues

PAT

EPS

PE

0.00

10000000000.00

20000000000.00

30000000000.00

40000000000.00

50000000000.00

60000000000.00

70000000000.00

80000000000.00

90000000000.00

FY08 FY09 FY10 FY11 FY12E

Revenues 12930000000. 18350200000. 23550900000. 44280000000. 83800000000.

PAT 6252700000.0 2766900000.0 7454900000.0 8420000000.0 13388500000.

EPS 3.81 1.69 4.55 5.13 8.16

PE 19.12 43.21 16.04 14.20 8.93

19.12 43.21 16.04 14.20 8.93

Financials Graph


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17

Analyst Notes And Company News


21/21


18

Researched and prepared by:

Muhammed Aslam E

Fundamental Analyst

Email:[email protected]

Ph:(0484) 3040400, 3040419

In co-operation with:

Neha Mahajan

Fundamental Analyst


Amar Chandramohan

Sr. Fundamental Analyst


Krishnan Thampi K

Head of Research and Strategies


HEDGE RESEARCH & STRATEGIES GROUP

Head of Research: Krishnan Thampi K

Sr. Fundamental Analyst: Amar Chandramohan

Jr. Fundamental Analyst: Muhammed Aslam E

Jr. Fundamental Analyst: Neha Mahajan

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Sr. Commodity & Equity Technical Analyst: Kesavamoorthy B

Futures & Options Analyst: Yunus Ismail

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private circulation only. The information in our report is not intended as financial advice. Hedge Equities Ltd does not undertake the responsibility for an

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