JSW Energy Ltd is expanding its operating capacity significantly over the next few years through various projects. The company expects to enhance capacity to nearly 11,500MW by 2015-16 from the current 995MW. Revenue is projected to grow at a CAGR of 58% through FY2012. The report recommends a 'Buy' rating based on a fair value of Rs. 145 per share using a FY2012 P/E multiple of 15 times. Key risks include uncertainty in merchant power rates and imported coal prices.

1. October 1, 2010
Recommendations <= 1 year 1 - 2 yrs 2 - 5 yrs
JSW ENERGY LTD BUY
Strong Buy
JSW Energy Limited (JSWEL), a JSW Group Company has 995MW of operational Buy
generating capacity and expects to commission additional 2,145MW of generating Hold
capacity over the next two years. Reduce
Sell
• The company is in an expansion mode and is expecting to enhance its capacity to nearly Strong Buy – Expected Returns > 20% p.a.
11,500MW by 2015-16. In the near term, the management targets capacity addition to Buy – Expected Returns from 10 to 20% p.a.
Hold – Expected Returns from 0 % to 10% p.a.
the tune of 1275MW in FY11, taking total operating capacity to 2270MW by FY2011 Reduce – Expected Returns from 0 % to 10% p.a. with possible downside risk
Sell – Returns < 0 %
which would be mainly from Raj West Power Ltd (Unit 1) and JSW Energy Ratnagiri Ltd
(Unit 1).
• The efficiency is high at the company’s power plants. The Plant Load Factor (PLF) for
STOCK DATA
existing units at Vijaynagar is at above 90% levels, while it is expected to be about 90%
BSE / NSE Code 533148 / JSWENERGY- EQ
for JSWERL and 80% for RWPL. Overall, out of total generation, 40% will be allocated for Bloomberg Code JSW IN EQUITY
PPA and rest for Short term agreements. No. of Shares (Mn) 1640
Sensex / Nifty 19,956/5,991
• The cost of fuel contributes to nearly 45-55% of total revenues. JSWEL has a total coal PRICE DATA
requirement of 6mt & 10.7mt in FY11E & FY12E respectively. The company’s tie-up with CMP Rs (29th Sept' 10) 118.3
Beta 0.89
Indonesian & South African coal mines & captive Lignite blocks at Rajasthan among Market Cap (Rs mn) 194,018
others will ensure fuel security for the company. 52 Week High-low 136.6/ 99.9
Average Daily Volume 1,445,646
• We expect JSWEL’s revenues to grow at a CAGR of 58% from 23,551mn in FY-10 to Rs STOCK RETURN (%)
59,090mn in FY2012. We further estimate that PAT would grow at a CAGR of 46% from 30D 3M 6M 1Y
JSW Energy -7% -4% 5% NA
7,455mn in FY-10-12 to Rs 15,858mn in FY-12.
Sensex 11% 14% 13% 18%
Based on a consolidated FY12 P/E multiple of 15, the fair value for the company works Nifty 11% 14% 13% 20%
SHARE HOLDING PATTERN (%)
out to Rs 145.
Promoter 77
Financial Snapshot Institution 12
Non Institution 11
Projections (Rs Mn) FY08A FY09A FY10A FY11E FY12E
Total 100.0
Revenue 12,931 18,350 23,551 32,461 59,090 9 Month Price Performance (Rel. to Sensex)
Y-o-Y Growth % 41.9% 28.3% 37.8% 82.0% 40
EBIDTA 9,094 5,490 12,877 18,342 30,617 35
Y-o-Y Growth % -39.6% 134.5% 42.4% 66.9% 30
Sensex JSW Energy
PAT 6,253 2,767 7,455 7,674 15,858 25
Y-o-Y Growth % -55.8% 169.4% 2.9% 106.6% 20
EPS Rs 12.2 5.1 5.2 4.7 9.7 15
10
BVPS Rs 19.5 27.1 29.1 33.1 41.4
5
EBIDTA % 67.8% 29.0% 51.5% 54.3% 49.6%
0
NPM % 48.4% 15.1% 31.7% 23.6% 26.8% -5
ROE % 62.3% 18.7% 15.6% 14.1% 23.3% -10
PER x 25.3 12.2 -15
P/B Ratio 3.6 2.9
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2. October 1, 2010
BUSINESS PROFILE
JSW Energy straddles over large spectrum of Power business such as Mining, Equipment Manufacturing, Power Generation, JSWEL plans to
Power Transmission and Power Trading. JSWEL, with 260MW Vijaynagar-I, 600MW Vijaynagar-II and 135MW Raj West units has expand its operating
capacity to nearly
current operating capacity of 995MW. The company sells power through Long term and Short term power purchase agreement 11500MW by 2016.
to state power units, power trading companies and industrial customers. The value chain of company is given below:
• Mining: Majority of the power projects undertaken are thermal i.e. coal based generation. The Company largely depends on
imported coal (40-50%) for generation. The company has tied up with various coal suppliers such as Coal India Limited, Barmer
Lignite Mining Company Limited, Utkal-A (Orissa), Ichhapur Coal Mine (W Bengal), long term coal contracts from Indonesia and
Mozambique and JSW Energy Natural Resources South Africa etc, which would ensure fuel security.
• Transmission: Jaigad Power Transco Ltd (JPTL) is a 74:26 JV between JSWEL and MSETCL. JPTL has entered into an
agreement with JSWERL for the development of transmission systems and networks for supplying its power to the state
transmission system.
• Trading: JSWPTC is trading power since FY06 with an “I” category license. It is a 100% subsidiary of JSWEL. It trades power
which is generated by JSWEL and its subsidiaries only.
• Equipment Manufacturing: JSWEL has entered into a JV with JSWSL and Toshiba Corporation, Toshiba JSW Turbine and
Generator Pvt Ltd (Toshiba JSW), for the design, engineering, manufacture, assembly and sale of sub-critical and super-critical
steam turbines and generators ranging in capacity from 500MW to 1,000MW. JSWEL holds 20% stake, JSWSL holds 5% stake and
Toshiba Corporation holds 75% stake.
This forward and backward integration provides synergies to the power generation business and improves margins.
Projects under implementation
Capital
Capacity Land MoEF Fuel Financial Projec Cost Expected date
Project Equipments Invested (Rs
(MW) Acquisition Clearence Supply Closure (Rs Cr) of comissing
Cr)
RWPL 1 1,080 √ √ √ √ √ 5,000 4,587 FY 11
JSWERL 1 1,200 √ √ √ √ √ 4,500 3917 FY 12
RWPL 2 270 √ √ × √ √ 1,350 62 FY 12
JSWERL 2 3,200 √ × × × × 15,000 - FY 15
Chattishgrah 1,320 × × √ × × 6,500 33 FY 15
W Bengal 1,600 √ × √ × × 9,680 28 FY 15
Kutehr 240 × × √ × × 1,915 80 FY 16
Jharkhand 1,620 × × × × × 7,900 - FY 15
Total 10,530 51,845 8,707
Key Risks and Concerns…
Revenue will be affected if there is fall in merchant power demand and rates. As the company is more dependent on Uncertainty in
merchant power
imported fuel, there is risk of high fuel cost; exporting countries export policies and mining policies. Fuel security will be
rates and imported
affected by slow progress in mine development at coal mines allocated. Besides, higher than expected AT&C losses will be coal prices a concern
negative for the company.
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3. October 1, 2010
Strong Revenue Growth ahead….
For the quarter ended June 2010 on a consolidated basis Total Income of JSW Energy stood at Rs 9323.9 mn Revenue increased
indicating an impressive 210% increase on a Y-o-Y basis comparison. The Net Profit after Tax after Share of Profit of by 210% Y-o-Y on
Minority for the period under review stood at Rs 2986.4 mn indicating an increase of 219%. The Operating Results
commissioning of
capacities
for the Q1FY11 are in respect of 735MW capacity addition. The figures of the corresponding period in the previous
year was only for 260MW & hence not comparable. The fuel cost and other expenditure increase (as a % of Total
Revenue) from 35.6% to 45.9% and from 4.1% to 4.3% respectively.
70,000 Annual Revenues and Margins 90% 10,000 Quaterly Consolidated Performance 70%
60,000 80% 60%
70% 8,000
50,000 50%
60%
40,000 6,000 40%
50%
30,000 40% 30%
4,000
30%
20,000 20%
20% 2,000
10,000 10% 10%
- 0% 0 0%
FY09A FY10A FY11E FY12E Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11
Revenue (Rs Mn) EBIDTA Margin PAT Margin Net Revenue (Rs mn) EBITDA Margins
Peer Group Comparison
Revenue EBIDTA PAT Margin P/E P/B CMP FV
Companies ROE %
(Rs. mn) Margin (%) (%) (x) (x) (Rs.) (Rs.)
JSW Energy 23,551 52% 31.7% 17.7% 22.9 4.1 118 10.0
CESC 42,040 15% 3.7% 5.0% 30.9 1.5 390 10.0
Torrent Power 58,243 32% 14% 21.1% 18.1 3.8 321 10.0
Neyveli Lignite 41,210 46% 30% 12.1% 21.4 2.6 159 10.0
* FY10 Consolidated figures
Peer Comparison
The Company sells higher proportion of power in the merchant power category (60%), as compared to its peer group Higher merchant
power proportion to
which would provide it an edge as the outlook on merchant power rates remains stable at least for the next 2 years amid maintain higher
power deficit. Further, the Company is expected to benefit from 2,145MW of capacity expected to be commissioned over margins
the next 2 years. In addition, the company’s presence across the power value chain with backward integration into coal
mining, power transmission and trading will result into synergies maintaining margins going forward.
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4. October 1, 2010
VALUATION
We estimate JSW Energy Ltd’s revenues to grow at a CAGR of 58% over FY2010-12 to Rs 59,090mn by FY2012. We Based on a
consolidated FY12
further estimate that PAT would grow at a CAGR of 46% over FY2010-12 to Rs 15,858mn in FY2012 from Rs 7,455mn
P/E multiple of 15,
in FY2010. the fair value for
the company works
out to Rs 145.
Based on a consolidated FY12 P/E multiple of 15, the fair value for the company works out to Rs
145.
We recommend a ‘BUY’ rating on the stock.
Financial Analysis and Projections
Particulars (Rs Mn) FY08A FY09A FY10A FY11E FY12E
Net Revenue 12,931 18,350 23,551 32,461 59,090
Other Income 329 171 742 717 1,306
Total Income 13,261 18,522 24,293 33,178 60,396
Operating Expenditure 4,167 13,032 11,416 14,836 29,779
Depreciation 586 602 1,361 2,140 4,582
EBIT 8,508 4,888 11,516 16,202 26,035
EBIT Margin (%) 66% 27% 49% 50% 44%
Interest 886 1,209 2,837 6,734 6,470
Profit Before Tax 7,623 3,678 8,679 9,468 19,566
Less: Tax 1,370 912 1,224 1,794 3,708
Profit After Tax 6,253 2,767 7,455 7,674 15,858
PAT Margin (%) 48.4% 15.1% 31.7% 23.6% 26.8%
ROE (%) 62.3% 18.7% 15.6% 14.1% 23.3%
EPS (Rs) 12.2 5.1 5.2 4.7 9.7
BVPS (Rs) 19.5 27.1 29.1 33.1 41.4
Valuation Ratios (x) FY11E FY12E
P/E 25.3 12.2
P/B 3.6 2.9
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5. October 1, 2010
Board Of Directors
Director Name Current Position Description
Mr. Sajjan Jindal is Chairman of the Board, Managing Director of JSW Energy Ltd. He holds a bachelor’s degree in mechanical engineering from the
Bangalore University. He is also a principal promoter of the Company, vice-chairman and managing director of JSWSL and chairman in other JSW
Group Companies and director in other companies. He is currently the president of Assocham, member of Indian Council for Sustainable
Chairman &
Sajjan Jindal Development, member of the Advisory Committee of TERI School of Management, member of CII National Council, council member of Indian
Managing Director Institute of Metals and member of the Board of Directors of Indian Institute of Management, Indore. In 2007, Mr. Jindal was named the Ernst & Young
‘Entrepreneur of The Year’ in the manufacturing category. He has been on the Board of Directors of the Company since October 20, 2003. He was
designated as the Chairman and Managing Director of the Company on January 1, 2009.
Mr. Lalit Kumar Gupta is Chief Executive Officer, Joint Managing Director, Whole Time Director of JSW Energy Ltd. He holds a Bachelor’s degree in
Commerce (Gold Medalist) from Jiwaji University, Gwalior. He secured ranks in both Intermediate and Final Examination of Institute of Chartered
Accountants of India and is a Fellow member of Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. Mr.
Chief Executive Officer, Gupta who has over 3 decades of experience comes from Mangalore Refinery and Petrochemicals Limited (MRPL) which he joined in December 1999
Lalit Gupta Joint Managing Director, as Company Secretary and was elevated to the position of Vice President (Finance) and Company Secretary in June 2003 and to the position of
Whole Time Director Director (Finance) in May 2006. At MRPL, Mr. Gupta is credited with several initiatives, innovative and cost cutting measures including initiation of
complete financial re-engineering thereby bringing down finance costs drastically, managing and implementing the Debt restructuring plan within a
record period, negotiating sales tax incentives prepayment with Government of Karnataka resulting in complete turnaround within the first year of
ONGC’s takeover of MRPL
Mr. Nirmal Kumar Jain has been appointed as Executive Vice Chairman of the Board of JSW Energy Ltd. He holds a Bachelor’s degree in commerce. He
is a Fellow member of Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. Mr. Jain, who joined the JSW
Group in 1992, held positions of increasing responsibility including as Director - Finance in 1994, Deputy MD & CEO in 1996 and Executive Vice-
Chairman of Jindal Iron & Steel Co Ltd. in 2001 till it was merged into and formed as JSW Steel Limited. He was also on the Board of Company as Vice-
Executive Vice Chairman Chairman from 1999 until he resigned with effect from 23.10.2008. Prior to joining JSW Steel Limited, Mr. Jain was the General Manager (Finance) of
Nirmal Kumar Jain of the Board Permanent Magnets Limited. Mr. Jain’s contributions to the JSW Group include helping the JSW Group to strengthen its position from being a steel
manufacturer to a diversifi ed conglomerate. In his last assignment, he has been driving JSW Group’s energy business. In his tenure with the Group, he
was involved in the management of joint ventures with business partners from the globe such as Power Business with Tractebel of Belgium, Oxygen
business with Praxair of USA and Steel business with British Steel of UK. Mr. Jain has also contributed to JSW Group in many other areas, including the
JSW Group in its new ventures such as Energy, Infrastructure and Aluminum, apart from spearheading various assignments for Steel business.
Mr. Sattiraju Seshagiri Rao is Whole Time Director of JSW Energy Ltd. He has resigned as Chief Executive Officer, Joint Managing Director of the
Company with effect from May 31, 2010. He holds a Bachelor’s degree in Electrical Engineering and a masters degree in business administration. Mr.
Rao has over four decades of experience in establishing Greenfi eld thermal power projects, negotiating and implementing Power Purchase
Sattiraju Seshagiri Rao Whole Time Director Agreements and fuel supply agreements, power pricing, tariff structures and mechanisms, environment friendly and safe methods in operating and
maintenance of power plants. He is a member of the New York Academy of Sciences, Chartered Engineer (India), Senior Member of IEEE (USA), Fellow
member of the Institution of Engineers and Licensee as Surveyor and Loss Assessor (IRDA). Prior to joining the Company, Mr. Rao worked with the
Power Grid Corporation of India Limited, National Thermal Power Corporation, Mecon India Limited and Aditya Birla Group.
Mr. D.J. Balaji Rao is a Non-Executive Independent Director of JSW Energy Ltd. He holds Bachelor’s degree in Mechanical Engineering and holds a Post
Graduate Diploma in Industrial Engineering. He has also attended the Advanced Management Program at European Institute of Business
Non-Executive
D. L. Balaji Rao Independent Director
Administration at Fontainbleu, France. He has worked with ICICI for 25 years in the field of project evaluations and operations and has served as an
Executive Director of ICICI and as the Vice - Chairman and Managing Director of SCICI Limited. He was the first Managing Director of Infrastructure
Development Finance Company Limited.
Mr. P. Abraham, IAS (Retd.) is a Non-Executive Independent Director of JSW Energy Ltd. He holds a Masters degree in Arts and Diploma in System
Management and is an Indian Administration officer. He worked in various capacities as the Secretary Municipal Administration, Housing and Urban
Development, Government of Andhra Pradesh, Secretary to the Maharashta State Electricity Board, Secretary to the Energy Department of
Non-Executive
P. Abraham Independent Director
Government of Maharashtra, Chairman and Managing Director, Maharashtra State Textile Corporation, Joint Secretary, Industries Department,
Government of Maharashtra, Iron & Steel Controller, Ministry of Steel, Government of India, Managing Director, Investment Corporation of Andhra
Pradesh, Commissioner of Industries, Government of Andhra Pradesh, Secretary, Environmental & Energy Department Additional Secretary and
Special Secretary, Ministry of Defence, Government of India,Secretary, Ministry of Power, Government of India.
Mr. Chandan Bhattacharya is a Non-Executive Independent Director of JSW Energy Ltd. He holds a Bachelor degree in Arts Honours from Kolkata
University and CAIIB. He is the former Managing Director of State Bank of India and has a wide range of experience of over 39 years in Banking, Trade
and Commerce. He was a member of Managing Committee of Indian Banking Association,Executive Committee of FICCI, Banking & Finance
Chandan Non-Executive Committee of ASSOCHAM and head of Inter - Institutional Group on financing of fast track Power Projects. He has also served on the Boards of
Bhattacharya Independent Director Directorsof SBI, California, SBI Capital Markets Limited, SBI Funds Management Private Limited, SBI Factors & Commercial Services Private Limited,
INMB Bank Limited, Lagos, Nigeria, Discount & Finance House of India Limited, Mumbai and eight other associate banks of SBI. He has served as a
Member, Securities Appellate Tribunal in the rank of Secretary to Government of India. Currently, he is a Senior Advisor of the Societe Generale Bank
in India.
Mr. Tilak Raj Bajalia is Non-Executive Independent Director, Reprsentative of IDBI Bank Limited of JSW Energy Ltd. He holds a Bachelor’s degree in Arts,
CAIIB and member of Institute of Cost and Works Accountants of India. He started his banking career in 1974 with Bank of India and joined IDBI in
Non-Executive 1983. He has worked in various departments like human resources department and corporate finance department, has handled Infrastructure projects
Tilak Raj Bajalia Independent Director and recovery and is presently heading SME Vertical. He has also been in-charge of the Jaipur branch office, handling the entire Rajasthan region
portfolio and Mumbai branch office covering entire Maharashtra. He was a member of the committee constituted by Reserve Bank of India for
restructuring of cases with exposure less than Rs.100 million. He has been associated with CII and FICCI for the development and growth of SMEs.
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