Brokerages bullish on JSW Energy shares amid O2 Power acquisition, say deal unlocks value; stock up 6%

On December 27, JSW Energy's shares on BSE closed 1 percent lower at Rs 629.85 apiece.

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Shares of JSW Energy surged over 6 percent in trade on December 30, after a wholly-owned subsidiary of the firm JSW Neo Energy signed a definitive agreement to acquire O2 Power, a renewable energy platform jointly established by Swedish asset manager EQT Partners and Singapore’s Temasek Holdings. Brokerages were bullish on this acquisition, as it bolstered the energy player's growth outlook.

The transaction values the platform at an enterprise valuation of Rs 12,468 crore ($1.47 billion), after adjusting for net current assets.

JSW Energy announced that O2 Power, a renewable platform with 4,696 MW capacity, will have 2,259 MW operational by June 2025, 1,463 MW under construction, and 974 MW in the pipeline for June 2027.

With a Rs 3.37/KWh tariff and 23 years of remaining life, the capacities span seven resource-rich Indian states. This acquisition boosts JSW Energy's locked-in generation capacity by 23 percent to 24,708 MW.

At 9.20 am, JSW Energy shares were quoting Rs 663.3, higher by 6 percent compared to the previous session's closing price on the NSE.

Brokerages have the acquisition a thumbs up, with global broking house Investec stating that the acquisition is a significant step for JSW Energy as it enhances the company's renewable energy portfolio.

Further, it secures future growth, targeting a capacity of 25 GW by FY27/28. The deal might incorporate 2.4 GW of operational assets with a run-rate EBITDA of Rs 1,500 crore. However, Investec maintained its 'hold' rating, and a target price of Rs 675 per share.

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Domestic brokerage Motilal Oswal reiterated its buy call, with a target of Rs 810 share, following the acquisition news. With listed Renewable Energy generation companies currently trading at ~15x EV/EBITDA, the acquisition of 4.7GW high-quality renewable assets at ~7x EV/EBITDA unlocks Rs 57 in value, we estimate," said the brokerage.

Motilal Oswal highlighted the strong asset quality, noting:

• O2 Power's competitive 8.8 percent interest cost matches JSW Energy’s,
• Receivable days for O2 are 43, lower than JSW Energy’s 68 days,
• 87 percent of the portfolio is backed by utilities like SECI, NTPC, and SJVN, with the rest from highly rated C&I issuers,
• The portfolio is diversified across solar, wind, and niche segments.

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