JSW Energy commences 135 MW Barmer Unit IV operations

JSW Energy (JSWE) has announced that it has commenced operations from 135 MW Unit IV of its power project in Barmer, Rajasthan. Barmer Units I, II and III (135 MW each) have already started operations. The scrip closed at Rs 45.70, up by 1.78%, by the end of the day.

This project of 1080 MW capacity is based on domestic coal, and has an agreement with Barmer Lignite Mining Company for the supply of lignite from its captive lignite mines. The company has also signed long term power purchase agreements for the entire quantum of power with state government distribution utilities. The total cost of the Barmer project is Rs 6885 cr, which is funded through Debt (75%) and Equity (25%). So far, 540 MW of capacity has been commissioned. The entire project will be completed in the next quarter, as per a presentation uploaded by the company on its website.

The company has also recently commenced commercial operations from its Ratnagiri Unit IV (300 MW). This project is based on imported coal, with 900 MW capacity tied for short term sales and 300 MW with the State Electricity Board of Maharashtra.

With the commissioning of these capacities, the total capacity of the JSWE has increased to 2600 MW. It also has a total 9470 MW of capacity under various stages of development.

Despite new additions, in this year, the stock has been hammered by 54% on a YTD basis. We are of the opinion that this new addition  of Unit IV will not have a significant impact on its profitability; as it represents merely 5% of the total capacity. Also, the company has a total 79% capacity based on imported coal, and just 21% capacity based on domestic coal. In FY11, JSWE imported total 31.27 lakh MT of imported coal, at a cost about Rs 1927.86 cr. With dollar appreciation, we expect the company's profitability to take a beating in FY12. In fact, in the September 2011 quarter, it reported a loss of Rs 110 cr, despite a handsome topline growth of 24%.

Through our Mindshare articles, we, at DSIJ, have repeatedly let investors know that imported coal will have an adverse impact on the bottomline of the companies, and that the picture of the power sector looks very gloomy. We advise investors to stay away from the stock, as it will not have a significant impact on its bottomline.