JSW Energy is gearing up for backward integration by venturing into manufacturing to fuel its ambitious target of increasing capacity by more than double to 20 gigawatts (GW) ahead of its financial year 2030 target.
But the highly anticipated value unlocking in its renewable energy arm, JSW Neo Energy, may not happen soon, as QIP funds have secured financing for the next two years, the officials said.
In an exclusive interview with Moneycontrol, the company’s Joint Managing Director and Chief Financial Officer Sharad Mahendra, and Chief Financial Officer and Director (Finance) Pritesh Vinay, said that JSW Energy wants to be more aggressive in bidding for wind and solar power projects to accelerate growth as the environment appears more conducive now. It will also continue to scout for acquisition opportunities.
Earlier this month, the power utility, led by industrialist Sajjan Jindal, hit the capital market with a Rs 5,000 crore qualified institutional placement of shares, in its first equity issue since its initial public offer in 2010. Mahendra and Vinay said the company would use the proceeds primarily for green energy capacity.
JSW Energy is looking at backward integration by getting into manufacturing for wind and solar power equipment to de-risk its growth plans from supply chain disruptions, the top bosses told Moneycontrol. It is also working on plans for battery storage manufacturing to fuel the group’s entry into the electric vehicle segment, they added.
Edited excerpts follow:
Given the kind of growth plans you have, how does this fundraising tie in? What is the rationale?
Sharad Mahendra: About 1.5-2 years back we announced that JSW Energy’s ‘strategy 2.0’ is to reach 20 gigawatt (GW) by FY30. In the first phase, we aim to reach 10 GW by FY25. In FY24 we reached 7.2 GW gigawatt capacity and the work in progress of projects on the ground is another 2.6 gigawatt, which takes it to 9.8 GW. Some fresh capacities will also get executed, so we are in line to reach 10 GW by FY25. In the second phase, from FY26 to FY30 we will be adding another 10 GW to reach 20 GW. Now, the scenario has changed and there are a lot of opportunities. The environment is more conducive; we feel that there is a strong opportunity to accelerate our growth. In the last 2-3 months’ time we have participated in the competitive bidding space and we have won 3.7GW.
We are quite confident that this 20 gigawatt by FY30 will be accelerated now and will be completed much ahead of time, maybe a few years earlier than FY30. To fund this accelerated growth, I think the timing of this QIP is going to be a major enabler for us.
Pritesh Vinay: I think after more than a decade the power sector in India has come on the radar of many large institutional investors, both global as well as local. The phenomenal response to our QIP is more a reflection of the investors’ confidence on the execution capability and track record of JSW Energy, on the conservatism and prudence of the capital allocation track record, and I think the sum total of all that.
Investors are looking at this as a diversified platform present across all modes of generation, looking at backward integration for supply chain de-risking, and looking at forward integration by looking at the electrons to molecules business.
You have raised equity at the parent company despite having other options, like value-unlocking in JSW Neo. One section of the market feels that this signals that fossil fuel-based power growth will continue and you want this equity to be available for that as well. Is that correct?
Pritesh Vinay: This is an important question. In the last 6-9 months, we have consistently been asked about potential monetisation at JSW Neo. We created this vehicle a couple of years ago for precisely this reason. But we consistently maintain that whatever strategic decision we make, we will definitely weigh what is going to be the most value accretive tradeoff at the time.
One of the other important considerations for going through the QIP route was that in the last year or so we kept getting a lot of feedback from a lot of large institutional investors that the company is great, you are executing very well but you have very limited free float and very low liquidity. So, the idea was also to create a liquidity event to get some very reputed blue-chip names in the cap table who can be potential partners for long-term growth. By the end of this fiscal year, we will be close to 10 GW of capacity, of which less than 40 percent will be fossil fuel and over 60 percent will be green. In the next 10 GW, 100 percent of the pipeline will be green. It is reasonable to assume that almost the entire new capital will go to grow the renewable business.
Where does hydropower fit into this plan?
Sharad Mahendra: Hydro projects have a high gestation period. We started a greenfield project of 240 megawatt (MW), which is at a very advanced stage. In the current fiscal year we will definitely be commissioning that plant.
You wanted to get into solar module manufacturing and then you put the plan on hold earlier this year given the decline in prices. There has been a bit of a flip-flop in strategy, where do you stand now?
Sharad Mahendra: As you rightly said, there’s been a flip-flop. We are very clear that we are now aggressive in terms of participating in competitive bids, and getting orders. But one thing is very clear: financial prudence is the key in taking any decision. It is not that at any cost or at any price we will grow.
That is the reason we are de-risking. We are working on a certain complex solution, which is the need now. This need will increase significantly in the country, which limits the competitive landscape and gives us the desired returns. In solar, for instance, in the Bhadla project, when the bids were around Rs 2/ unit, we never participated. We kept on waiting for the right time and now we have observed that with the project cost declining and given our capabilities of executing, it has become attractive. That is why we participated in solar bids; in the last 2-3 months, we won almost 2.4 GW of solar capacity.
In wind, too, we feel the tariff is more reasonable now, so we participated and have already won close to—maybe in excess of—a 1.3 GW portfolio. This is the breakup of the 3.7 GW.
We have a dedicated team. We participated in the FDRE (Fixed Dispatchable Renewable Energy) bid also, and we have won a significant portion. So, we are trying to now identify the needs of the DISCOMs of different states and going to them not just for orders but are also working as an enabling partner.
When we are adding 10 GW and going up further to say 40-50GW, there are going to be challenges in terms of the supply chain. To de-risk our supply chain, we are going for backward integration. Recently, we have signed a technology licence agreement with one of the leading wind players, Sany Wind in China, to manufacture wind turbines in India for our captive use with higher megawatts. Similarly, we will look at solar module manufacturing also.
What about green hydrogen?
Sharad Mahendra: Green hydrogen economics needs some more time. But when the government of India came with the PLI scheme, we participated for a small portion and won, too. We are now setting up a plant in Karnataka for our captive requirement for steel, which will also move towards green steel at the right time, when the economics make sense.
JSW Energy has announced plans to set up energy storage manufacturing. What are the investments and timelines that you have planned for that?
Sharad Mahendra: We have already won the country’s largest 1 GWh storage project, for which we are procuring from outside. We have announced a 10 GW hour (GWh) capacity for manufacturing; we are looking for a portion of this investment for our own battery energy storage requirement. The group has entered the EV space, and battery packs and cell manufacturing will be done in this plant to supply our own company. And if the opportunity comes, outside also.
Pritesh Vinay: We are in advanced discussions with a couple of potential technology licensing partners. It is subject to finalisation of the contours in terms of the quantum of investment. It’s a bit premature to announce right now, but we are working in that direction.
The market was looking forward to value unlocking in JSW Neo. With the QIP done, does this mean it may not happen anytime soon?
Pritesh Vinay: Without this capital raise, we were in a position to do an annual capex of Rs 12,000-15,000 crore. This 5,000 crore additional equity from QIP gives us the ability to lever up an additional Rs 15,000 crore of debt, which means an additional one-time Rs 20,000 crore spending capacity has been created. That is a large amount unless a very meaningful inorganic opportunity comes up. Suffice to say that, for the near-term, we have raised enough capital, which gives us the runway for organic growth for the next 2-3 years. But if a suitable opportunity comes, we will go back to the drawing table and assess what is in the best interest of shareholders.
While most power companies struggled with huge debt, what kept JSW Energy in good stead was that it was managing debt. Given your ambitious growth plans and that you have the room to raise more debt now, would there be a significant increase in debt-raising? What’s the debt-to-equity ratio you are aiming for?
Pritesh Vinay: We have the industry leading lowest capex per megawatt. We have the industry leading lowest O&M cost per megawatt, and we have one of the strongest balance sheets in the space because of which we enjoy one of the highest credit ratings in the private sector. This allows us to enjoy a very competitive financing cost for our growth projects. Now, at any such point in time, we would want to retain all this.
For large infrastructure projects which are capital-intensive in nature, you start with a 3:1 debt-to- equity. If you have a 25-year offtake agreement and are trying to solve for a particular debt service coverage ratio, it translates from a leverage ratio point of view to a net debt-to- EBITDA of, say, between 5-5.5. What we have publicly stated as part of Strategy 2.0 is that all the growth that we want to do till 2030, we would want to ensure that we do not cross four times net debt-to-EBITDA on a sustained, normalised basis. Those guardrails are not changing, so that the ratings are protected and we continue to enjoy the financing cost competitive advantage.
You recently acquired Reliance Power’s 45 MW wind power project. JSW Energy has been among the few power companies making acquisitions, what’s the pipeline looking like?
Sharad Mahendra: The Reliance Power project is a small asset that was available and we found it very attractive. Similarly, there are many other projects and this is a continuous phenomena. We have certain guidelines with which we evaluate. Our strength is fast execution and being one of the lowest project cost execution companies. I think the QIP strengthens our ability to go for an immediate acquisition as and when the opportunity comes.
You started the new financial year with a big-bang fundraising. What is your one big goal for FY25?
Pritesh Vinay: To hit 10 GW before March 2025.
Sharad Mahendra: Also, to ensure that we have capability built in to execute such large projects and ensure that the growth is sustainable.
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