JSW Energy Ltd. Q3 FY16 Result Update

1. JSW Energy Ltd.
Interest expenses dragged the bottom-line
BUY
Relative Capital Market Strength
JSW Energy Ltd. (JSWEL) reported a mixed set of numbers for Q3 FY16 quarter.
The company reported a consolidated total operating income of Rs.
26,491.3mn and was in-line with our expectations. Consolidated EBITDA too
came in-line with our expectation and stood at Rs. 11,912.7mn. However, on
account of higher depreciation and finance charge coupled with higher tax
incidence, PAT stood at Rs. 3,206.8mn, as against our estimate of Rs.
5,249.4mn.
Q3 FY16 Result Analysis:
Improved operating performance: JSWEL reported a thermal PLF of 90.3% in
Q3 FY16 as compared to 87% in same quarter a year earlier. With Oct-Dec
period being a seasonally weak quarter for hydro assets, the plant achieved an
average PLF of 24%. Consequently, consolidated net generation increased by
11.2% Y-o-Y to 5,968mn units, of which 609mn units was contributed by the
hydro power plants. On account of truing up of the provisional tariff, RWPL
reported 12.4% Y-o-Y decline in power tariff. Average power tariff during the
quarter declined by 3.8% Y-o-Y to Rs. 4.1 per unit.
Top-line grew by 11.3%: In Sept. 2015, the company completed the integration
of the hydro assets and Q3 FY16 was the first full quarter after the integration.
Thus, the current and previous quarter financials are not comparable. JSWEL
reported a 11.3% Y-o-Y increase in consolidated total operating income to Rs.
26,491.3mn. Sequentially it increased by 4.6%. On a standalone basis, top-line
declined by 3.7% Y-o-Y to Rs. 15,976.6mn.
Lower fuel cost led to an expansion in EBITDA margin: Total operating
expenditure increased 3.6% Y-o-Y (at a relatively lower pace as compare to the
top-line growth), mainly due to lower fuel cost (arising from lower international
coal prices) and addition of hydro assets. As a percent of total operating
income, power & fuel cost declined 7.5ppts. As a result, EBITDA increased by
22.3% Y-o-Y to Rs. 11,912.7mn, while margin expanded by over 4ppts to 45%.
Sequentially, EBITDA increased by 19.3% with over 5.5ppts expansion in
margin.
Higher depreciation and interest charge coupled with higher tax incidence
dragged the bottom-line: With the integration of hydro assets, depreciation
and finance charge increased 34.5% and 58% Y-o-Y, respectively. This coupled
with lower other income (-29.7% Y-o-Y) and higher tax incidence (36.1% in Q3
FY16 vs 26.5% Y-o-Y) led to a 15.7% Y-o-Y decline in PAT to Rs. 3,206.8mn.
Accordingly, PAT margin contracted by 386bps Y-o-Y to 12.1%.
Valuation: We believe that, with the revival in the economy, power deficit is
expected to increase, assisting a support to the merchant power rates. JSWEL,
with its presence in key power deficit region such as South India, is likely to
benefit from it. Besides, this the company is also expecting a finalization of
tariff for RWPL and Karcham Wangtoo power plants. Favorable order will be
positive for JSWEL.
Additionally, the acquisition of the hydro assets is likely to improve the sales-
mix and the profitability of the company. At CMP of Rs. 73.4, the company’s
share is trading at TTM P/E and P/BVPS multiple of 9.1x and 1.4x, respectively.
The recent correction in the stock price is not justified given the positive
outlook on merchant power rate and presence in the key power deficit market
such as South India. Based on SOTP valuation methodology, we arrive at a
target price of Rs. 99.7 per share, translating into an upside potential of 35.9%.
Hence, we reiterate our “BUY” rating on the stock.
Q3 FY16 Snapshot:
Rajnath Yadav | Board line: +91 22 6707 9999; Ext. 912 | rajnath.yadav@choiceindia.com
1
Jan. 25, 2016
Rating Matrix
CMP (Rs.) 73.8
Rating Buy
Target price (Rs.) 99.7
Target period 18 months
Upside potential 35.1%
52 week H/L (Rs.) 126.4 / 59.5
Face value (Rs.) 10
Category Large Cap
Sector Electric Utilities
Q3 FY16 Result Update
Source: Choice Broking Research, Company
Shareholding Pattern as on 30th Sept. 2015
Particulars Sep-15 Jun-15 Mar-15 Dec-14
Promoters 75.0% 75.0% 75.0% 75.0%
FIIs 8.8% 8.5% 7.2% 6.6%
DIIs 5.5% 5.8% 6.3% 6.5%
Non institutions 10.7% 10.8% 11.5% 11.9%
Consolidated Financial Snapshot (Rs. bn)
Projections FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 720 767 933 1,052 1,266 1,532
EBITDA 152 154 205 235 280 337
PAT 137 141 182 208 247 295
EBITDA (%) 21.1% 20.1% 22.0% 22.3% 22.1% 22.0%
PAT (%) 19.1% 18.4% 19.5% 19.8% 19.5% 19.2%
EPS 22 22 29 33 39 47
BVPS 64 75 90 106 126 149
RONW (%) 33.1% 32.0% 35.0% 33.7% 33.7% 34.0%
P/E 14.8 11.5 10.0 8.5 7.1
P / BVPS 4.4 3.7 3.1 2.6 2.2
EV/EBIDTA 8.2 5.8 4.8 3.5 2.4
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JSW Energy Ltd. Sensex
Particulars (Rs. mn) Q3 FY16 Q2 FY16 Q3 FY15 Q-o-Q (%) Y-o-Y (%)
Net Sales 26,491.3 25,314.3 23,808.3 4.6% 11.3%
EBITDA 11,912.7 9,982.8 9,741.5 19.3% 22.3%
Adjusted PAT 3,206.8 3,419.6 3,801.9 -6.2% -15.7%
EBITDA Margin (%) 45.0% 39.4% 40.9% 553 bps 405 bps
Adjusted PAT Margin (%) 12.1% 13.5% 16.0% (140) bps (386) bps

2. BUY
2
Q3 FY16 Quarter Actual vs. Estimates:
Source: Choice Broking Research, Company
Source: Choice Broking Research, Company
Q3 FY16 Result Update
Q3 FY16 Quarter Performance:
Particular (Rs. mn) Q3 FY16 Actual Q3 FY16 EstimatesVariance (%) Reason / Comments
Total Operating Income 26,491.3 26,386.9 0.4% Top-line came in-line with our estimates
EBITDA 11,912.7 11,640.4 2.3% EBITDA came in-line with our estimates
Adjusted PAT 3,206.8 5,249.4 -38.9%
Higher than expected depreciation and finance charge
coupled with higher tax incidence led to a fall in PAT
Particulars (Rs. mn) Q3 FY16 Q2 FY16 Q3 FY15 Q-o-Q (%) Y-o-Y (%)
Total Operating Income 26,491.3 25,314.3 23,808.3 4.6% 11.3%
Total Operating Expenditure (14,578.6) (15,331.5) (14,066.8) -4.9% 3.6%
EBITDA 11,912.7 9,982.8 9,741.5 19.3% 22.3%
Depreciation (2,650.4) (2,240.1) (1,971.1) 18.3% 34.5%
EBIT 9,262.3 7,742.7 7,770.4 19.6% 19.2%
Interest Expenses (4,491.2) (3,511.4) (2,843.2) 27.9% 58.0%
Other Income 264.4 897.9 376.1 -70.6% -29.7%
Exceptional Items 0.0 1,500.0 0.0 -100.0% -
Profit Before Tax (PBT) 5,035.5 6,629.2 5,303.3 -24.0% -5.0%
Tax Expenses (1,816.3) (1,537.2) (1,405.1) 18.2% 29.3%
Adjusted PAT 3,206.8 3,419.6 3,801.9 -6.2% -15.7%
Basic EPS (Rs.) 2.0 2.1 2.3 -6.0% -15.5%
Diluted EPS (Rs.) 2.0 2.1 2.3 -6.0% -15.5%
EBITDA Margin (%) 45.0% 39.4% 40.9% 553 bps 405 bps
Adjusted PAT Margin (%) 12.1% 13.5% 16.0% (140) bps (386) bps
Jan. 25, 2016
JSW Energy Ltd.

3. BUY
3
Consolidated Key Operating Metric:
Q3 FY16 Result Update
Valuation:
Source: Choice Broking Research, Company
Particulars Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q-o-Q (%) Y-o-Y (%)
Average Deemed PLF (%) 65.3% 61.0% 56.8% 80.8% 73.8% (70) bps 85 bps
Vijayanagar PLF (%) 100.0% 100.0% 81.0% 81.0% 96.0% 150 bps (40) bps
Ratnagiri PLF (%) 84.0% 57.0% 66.0% 84.0% 90.0% 60 bps 60 bps
Barmer PLF (%) 77.0% 87.0% 80.0% 86.0% 85.0% (10) bps 80 bps
Himachal Pradesh (%) 0.0% 0.0% 0.0% 72.0% 24.0% (480) bps 240 bps
Net Generation (mn units) 5,366.0 4,698.0 4,480.0 5,637.0 5,968.0 5.9% 11.2%
Vijayanagar 1,770.0 1,726.0 1,405.0 1,430.0 1,689.0 18.1% -4.6%
Ratnagiri 2,024.0 1,333.0 1,574.0 2,038.0 1,955.0 -4.1% -3.4%
Barmer 1,572.0 1,639.0 1,501.0 1,504.0 1,715.0 14.0% 9.1%
Himachal Pradesh 0.0 0.0 0.0 665.0 609.0 -8.4% -
Sales Mix (%) 100.0% 100.0% 100.0% 100.0% 100.0% - -
Long Term PPAs 53.5% 53.9% 55.6% 55.4% 50.8% (463) bps (269) bps
Merchant Sales 46.5% 46.1% 44.4% 44.6% 49.2% 463 bps 269 bps
Average Realization (Rs. Per Unit) 4.3 4.4 4.2 4.0 4.1 2.5% -3.8%
Fuel Cost per Unit (Rs.) 2.3 2.2 2.2 2.2 2.1 -4.7% -10.9%
Other Operational Expenses per Unit (Rs.) 0.3 0.5 0.7 0.8 0.6 -27.0% 88.2%
We believe that, with the revival in the economy, power deficit is expected to increase, assisting a support to the merchant
power rates. JSWEL, with its presence in key power deficit region such as South India, is likely to benefit from it. Besides, this
the company is also expecting a finalization of tariff for RWPL and Karcham Wangtoo power plants. Favorable order will be
positive for JSWEL.
Additionally, the acquisition of the hydro assets is likely to improve the sales-mix and the profitability of the company. At
CMP of Rs. 73.4, the company’s share is trading at TTM P/E and P/BVPS multiple of 9.1x and 1.4x, respectively. The recent
correction in the stock price is not justified given the positive outlook on merchant power rate and presence in the key
power deficit market such as South India. Based on SOTP valuation methodology, we arrive at a target price of Rs. 99.7 per
share, translating into an upside potential of 35.9%. Hence, we reiterate our “BUY” rating on the stock.
SOTP Valuation Methodology Value (Rs. mn) Value per Share (Rs.)
Vijayanagar and Ratnagiri DCF 59,608.4 36.3
Raj West Power Ltd. DCF 44,664.7 27.2
Himachal Baspa Power Co. Ltd. DCF 27,629.4 16.8
Barmer Lignite Mining Co. Ltd. 1 x Investment 9,197.3 5.6
JSW Power Trading Co. Ltd. 1 x Investment Value 1,577.6 1.0
JSW Energy (Kutehr) Ltd. 1 x Investment 2,450.0 1.5
Toshiba JSW Power Systems Pvt. Ltd. 1 x Investment 1,002.3 0.6
Cas & Cash Equivalent Actuals 17,375.7 10.6
Total Value 99.7
Source: Choice Broking Research, Company
Jan. 25, 2016
JSW Energy Ltd.

4. 4
Financial Statements:
Source: Choice Broking Research
Source: Choice Broking Research
BUY
Q3 FY16 Result Update
Consolidated Profit and Loss Statement
Particulars (Rs. mn) FY12 FY13 FY14 FY15 FY16E FY17E
Total Operating Income 61,267.7 89,343.0 87,054.2 93,801.6 99,691.8 119,282.6
Fuel Cost (36,541.1) (42,959.2) (41,373.5) (46,811.3) (42,932.5) (46,777.6)
Purchase of Power (3,582.6) (11,482.1) (8,409.5) (2,247.7) (6,090.8) (4,000.0)
Employee Benefits Expense (904.7) (1,267.6) (1,334.2) (1,469.2) (1,732.0) (1,900.4)
Increase / Decrease in Banked Energy / Inventory 26.8 25.6 1,883.5 (1,920.6) 0.0 0.0
Other Expenses (5,708.9) (5,727.8) (5,306.5) (5,118.7) (6,826.4) (7,716.9)
EBITDA 14,557.2 27,931.9 32,514.0 36,234.1 42,110.1 58,887.7
Depreciation and Amortization Expense (5,033.5) (6,615.3) (8,099.5) (7,897.6) (9,087.5) (11,172.3)
EBIT 9,523.7 21,316.6 24,414.5 28,336.5 33,022.7 47,715.3
Finance Costs (7,172.4) (9,627.9) (12,059.4) (11,374.6) (14,181.4) (19,006.1)
Other Income 1,386.8 2,134.3 2,022.1 2,301.1 2,365.0 2,735.5
Exceptional Items (Net) (1,612.7) (1,965.9) (3,776.9) (342.3) 1,500.0 0.0
PBT 2,125.4 11,857.1 10,600.3 18,920.7 22,706.2 31,444.7
Tax Expenses (419.2) (2,733.1) (2,836.0) (5,149.9) (6,445.9) (9,095.7)
Adjusted PAT 3,313.1 11,002.4 11,324.3 13,837.4 14,083.9 21,429.0
Consolidated Balance Sheet
Particulars (Rs. mn) FY12 FY13 FY14 FY15 FY16E FY17E
Share Capital 16,400.5 16,400.5 16,400.5 16,400.5 16,400.5 16,400.5
Reserves and Surplus 40,600.2 45,637.1 49,311.2 58,779.7 71,450.3 89,564.9
Minority Interest 500.2 452.3 503.2 547.1 688.1 808.1
Long Term Borrowings 87,172.4 88,526.7 89,323.2 80,623.5 145,785.7 139,954.2
Deferred Tax Liabilities 1,291.6 1,524.2 1,932.9 2,929.7 2,550.7 3,051.9
Other Long Term Liabilities 14.0 18.6 18.6 140.0 140.0 140.0
Long Term Provisions 286.4 305.7 309.3 337.7 453.9 543.0
Short Term Borrowings 5,710.1 6,467.6 2,076.9 1,482.2 4,895.1 0.0
Trade Payables 25,288.7 25,678.4 16,405.1 16,393.3 21,620.7 23,064.8
Other Current Liabilities 14,262.2 14,872.1 12,268.5 12,550.7 14,661.0 17,542.1
Short Term Provisions 1,461.7 3,897.8 3,894.5 4,015.6 4,006.5 4,793.9
Total Liabilities 192,988.0 203,781.0 192,443.9 194,200.0 282,652.5 295,863.5
Fixed Assets 146,152.0 148,740.8 142,386.9 136,346.0 218,685.9 215,204.1
Goodwill on Consolidation 294.1 279.9 106.0 96.6 96.6 96.6
Non Current Investments 2,870.8 2,714.2 2,535.0 2,327.2 2,327.2 3,404.0
Long Term Loans and Advances 13,067.9 13,992.2 13,820.6 17,638.7 17,638.7 25,345.7
Other Non Current Assets 490.7 676.9 992.2 1,334.1 1,334.1 1,334.1
Current Investments 2,100.2 6,835.6 6,341.9 13,861.2 13,861.2 17,311.6
Inventories 7,658.4 4,414.7 4,157.7 5,482.6 5,171.4 6,285.5
Trade Receivables 10,639.8 18,487.4 11,976.3 11,722.9 15,600.9 16,661.4
Cash and Bank Balances 6,685.7 3,989.8 5,674.5 3,514.5 4,895.1 5,857.1
Short Term Loans and Advances 1,816.1 2,239.7 2,047.9 1,478.0 1,478.0 2,493.0
Other Current Assets 1,212.3 1,409.8 2,404.9 398.2 1,563.3 1,870.5
Total Assets 192,988.0 203,781.0 192,443.9 194,200.0 282,652.5 295,863.5
Jan. 25, 2016
JSW Energy Ltd.

5. 5
Financial Statement (Contd…)
Source: Choice Broking Research
Source: Choice Broking Research
BUY
Q3 FY16 Result Update
Consolidated Cash Flow Statement
Particulars FY12 FY13 FY14 FY15 FY16E FY17E
Cash Flow From Operations Activities 20,286.8 17,246.2 22,691.2 33,928.5 37,462.7 52,213.2
Cash Flow from Investing Activities (18,201.7) (9,441.1) (3,625.1) (4,207.6) (87,562.4) (18,204.2)
Cash Flow from Financing Activities (5,531.8) (6,844.1) (18,590.5) (23,272.2) 51,480.4 (33,047.1)
Net Cash Flow (3,446.7) 961.0 475.6 6,448.7 1,380.6 962.0
Opening Balance of Cash & Cash Balance 12,202.2 8,755.5 9,716.5 10,192.1 3,514.5 4,895.1
Closing Balance of Cash & Cash Balance 8,755.5 9,716.5 10,192.1 16,640.8 4,895.1 5,857.1
Consolidated Financial Ratio
FY12 FY13 FY14 FY15 FY16E FY17E
Profitability & Return Ratios
EBITDA Margin (%) 23.8% 31.3% 37.3% 38.6% 42.2% 49.4%
PAT Margin (%) 5.4% 12.3% 13.0% 14.8% 14.1% 18.0%
RoNW (%) 5.8% 17.6% 17.1% 18.3% 15.9% 20.1%
RoCE (%) 6.3% 13.4% 15.3% 17.6% 13.6% 19.1%
Working Capital & Liquidity Ratios
Current Ratio (X) 0.7 0.7 0.8 0.6 0.7 0.7
Quick Ratio (X) 0.5 0.6 0.6 0.5 0.5 0.6
Interest Coverage Ratio 1.3 2.2 2.0 2.5 2.3 2.5
Net Debt to EBITDA Ratio 5.8 3.0 2.4 1.8 3.1 2.0
Turnover & Leverage Ratios
Fixed Asset Turnover (X) 0.4 0.6 0.6 0.7 0.5 0.6
Total Asset Turnover (X) 0.3 0.4 0.5 0.5 0.4 0.4
Debt Equity Ratio (X) 1.6 1.5 1.4 1.1 1.7 1.3
Dividend Pay Out Ratio 0.6 0.1 0.3 0.3 0.2 0.2
Valuation Ratios
DPS (Rs.) 1.2 0.6 2.3 2.3 1.8 2.0
BVPS (Rs.) 35.1 38.1 40.4 46.2 54.0 65.1
EPS (Rs. Cr) 2.0 6.7 6.9 8.4 8.6 13.1
P / E (X) 36.7 11.0 10.7 8.8 8.6 5.7
P / BVPS (X) 2.1 1.9 1.8 1.6 1.4 1.1
EV / Sales (X) 3.4 2.3 2.3 2.0 2.5 2.0
EV / EBITDA (X) 14.1 7.4 6.2 5.1 6.0 4.0
Jan. 25, 2016
JSW Energy Ltd.