JSW Energy Benefits from Lower Fuel Costs, Net Up At Rs 312 Crore

Our top pick that was mentioned in our preview of Dec 2012 quarter in Power sector, JSW Energy had performed as per our expectations. The company has posted 33% rise in its topline to Rs 2329 crore. Net profit for the quarter stands at Rs 312 crore against a loss of Rs 81.74 crore in the corresponding quarter last fiscal. JSW Energy has benefited from the increased power generation, firm merchant power rates, lower fuel costs and improved tariffs during the quarter.

With the positive results by JSW Energy, hopes from some other power companies, like Adani Power and Tata Power have increased in this quarter. Power trading company PTC India may also surprise during the quarter.

JSW energy has a capacity of 2600 MW, and has reported a net generation of 4770 million units, up by 20% on a YoY basis in the Dec 2012 quarter.  Its per unit realisations increased by 10.55% to Rs 4.88 during the quarter on a YoY basis. On sequential basis too realisations have increased by 10% which has directly impacted its net profit in a positive manner.

Operating performance has been fantastic during the quarter with plant loading factor (PLFs) up at 91.34% compared to 82.30% reported a year before. On sequential basis also PLFs have improved indicating superb coal availability for the company. JSW Energy mainly consumes imported coal which remains abundantly available. Its business model is different from other companies as it sells about 60% of total generation on merchant basis getting market linked prices.

During the quarter, the coal prices remained 25-30% below the prices that were seen a year before. This has helped it reduce the total fuel costs by 2%. As per cent of sales, fuel cost in the Dec 2011 quarter was at 60.80% which has declined to 44.97% in Dec 2012 indicating a huge decline. During the quarter its power purchase cost was significantly up but the impact of the same has been shadowed by the decline in the other expenses. Overall, the impact of the reduced costs was very high as its EBITDA margins have improved by 1600 basis points to 35.94%. Sequentially too, the margins have expanded by over 700 basis points. The margins reported by the company in Dec 2012 quarter are the highest ever reported by the company.

It has reported a 18.5% rise in its interest expenses to Rs 236 crore. Forex gains during the quarter remained at Rs 61 crore compared to Rs 137 crore a year earlier. The company has said that its net debt stood at Rs 10158 crore compared 10144 in the September quarter of the current fiscal.

It has said that it is expecting the coal prices in the international market to remain under pressure until global economy shows recovery. It is expected to add 270 MW of capacity in Mar 2012 quarter and hence we expect the Mar quarter to be better.

During our Power sector quarter preview, we had specifically expected good results from the company and it has not disappointed the market. The stock is currently trading at annualised EV/EBITDA multiple of 8.5x. The scrip, however, looks undervalued as it trades at EV/EBITDA of 9.5-10x. We advice our readers to enter the counter with price target of Rs 85 which would still give 18% returns.