JSW Energy, the power utility of the Sajjan Jindal-led JSW Group, is diversifying into manufacturing to reduce risks related to supply as the company looks to scale up capacity to 20 gigawatts (GW) ahead of its 2030 target.
JSW Energy reported a 24% year-on-year rise in net profit in the fourth quarter of FY24, with revenue increasing by 3%. For FY24, the company reported its highest-ever earnings before interest, depreciation, tax and amortisation, and raised Rs 5,000 crore through qualified institutional placement of shares. It now has board approval to raise another Rs 10,000 crore.
Joint Managing Director and Chief Executive Officer Sharad Mahendra spoke to Moneycontrol on the company’s plans for capex in FY25, as well as its acquisitions and entry into wind turbine and battery manufacturing.
Edited excerpts follow:
Q. Your EBIDTA for the quarter and the year ended March has been the strongest thus far. Can you help us understand how much of the incremental growth has come from the assets you acquired from Mytrah, from the short-term market, and from the long-term market?
Last year, we reported the highest-ever EBITDA margins and EBITDA numbers from the Mytrah asset, which we acquired a year back. We have been able to generate an EBITDA of Rs 1,403 crore from the Mytrah assets. Of course, merchant sales also helped in terms of generating EBITDA. While we see that merchant tariffs compared with the previous year (FY23) have reduced, the average merchant tariff was Rs 5.24 against Rs 5.94 in the previous year. But we have to remember that the coal prices in FY23 averaged around $250, which fell to $110 in FY24. So, there was a sharp decrease in coal prices. The merchant prices were driven by the demand growth of around 7.5%; we have witnessed robust demand for the third consecutive year.
All these factors helped in achieving these numbers, especially Mytrah, wherein we improved the operational efficiency significantly after the acquisition. We got incremental generation by ensuring higher availability of wind and solar assets.
Q. This was the first full-year performance from the renewable energy assets you acquired from Mytrah Energy. How has the renewable energy portfolio contributed to overall performance and what’s the growth you see here going ahead?
With Mytrah’s assets, our total capacity was 7.28 gigawatt (GW) at the end of the last fiscal, out of which almost 51% capacity is in the renewable energy space. We had announced earlier that we will reach the milestone of 20 GW by FY30; we are absolutely on course for that. The work in progress will add to 7.28 GW and we are absolutely sure that we will be crossing 10 GW in the current fiscal. Out of this incremental capacity of close to 3 GW that will get added in the current year, the majority is coming from the renewable energy space. Only 350 megawatts (MW) will be from a thermal plant, from unit 2 of Ind-Barath; this is going to get commissioned in the current quarter.
Q. The company raised Rs 5,000 crore through equity in FY24 and you have gone ahead and taken board approval to raise another Rs 10,000 crore. What’s the rationale and when do you expect to raise this?
Our total locked-in capacity comes to 13.2 GW. We felt that now the environment is conducive and operational capacity has also reached a significant level to generate free cash flow at a reasonable level.
We had earlier said that we will reach 20 GW by FY30. Now, with the change in the environment, it is more conducive with the desired returns. We have now decided to accelerate this growth and we will reach the 20 GW goal a few year before FY30. The Rs 5,000 crore-QIP will help us in accelerating growth.
We have taken an enabling approval of Rs 10,000 crore. It is not that we have to definitely raise in the current year but it will keep us ready for when any opportunity comes up other than greenfield growth. There are a lot of possibilities prevailing in the market and continuously available through inorganic growth, which we keep evaluating. At the appropriate time, we will decide when to use this approval.
Q. The company has announced a capex of Rs 15,000 crore in FY25. How much of that is earmarked for inorganic growth?
The Rs 15,000 crore will be spent on organic growth of capacity, which includes work in progress. We also have new projects that are going to start and a 1 GWh battery energy storage capacity project. Work at the site has just started and we have finalized the orders so we will be moving fast to commission this 1 GWh capacity; we are sure that we will be commissioning this by the April-June quarter of 2025.
Q. What will be the mix of projects that have long-term power purchase agreements (PPAs) and those that will sell merchant power? Which are the projects where you still need to sign PPAs?
A. Other than unit 2 of Ind-Barath of 350 MW, which will get commissioned in the current quarter, all PPAs are tied up. We will be going for commissioning of the PPA tied capacities in the current year. In the fourth quarter, we won bids worth 3.6 GW, which is almost 19% of the total bidding that took place in the quarter. We have received letters of intent for 3.6 GW. For the rest, discussions on PPA signing have already started and we expect that once the election process is over, PPA signing will start.
Q. The short-term market is offering a very wide range of power tariffs from under Rs 3 per unit during non-peak hours to around Rs 8 in peak hours. What is your strategy to maximise returns from the merchant market?
A. We are going to see this more often because of the significant capacity addition in solar. During the day now, prices are coming down because there is excess power availability. Until a few years back, the night rates used to be the lowest but that has changed.
We have a small percentage of our total capacity, around 15%, which is open. This will go down further by the year end. Out of the 15%, a significant portion goes to the bilateral trade route, with customers who want reliable supply. The rest is available on the exchange. During the day, when the rates are low, we don’t have availability so we are not impacted because of these low rates. This is the reason why despite the Rs 5.24 average merchant tariff in FY24, our realisations have been significantly higher than these numbers.
Q. The government has asked companies to run imported coal-based plants on full capacity to meet the high demand expected. What’s your outlook on imported coal prices and what’s the strategy for coal sourcing?
In FY23, coal prices averaged $250, while in FY24, the average price was around $110. In April, it has further come down to a level of $107. With the global focus on renewable energy, coupled with storage, we definitely expect that it will continue to remain around the same levels. Out of the total portfolio, the open capacity is not very high. So, we don't see any impact on us and we are well prepared.
Q. JSW Energy has plans to diversify into battery-cell manufacturing and wind-turbine manufacturing. How soon can these capacities come up?
For wind turbines, the objective of going into manufacturing is because given the way we have seen bids coming in of around 40 GW, and the government’s target of 50 GW of bidding every year, we see huge capacity additions taking place in the wind space.
Going ahead, we see this can be a challenge as capacity addition will be significantly higher. We have taken this step for supply chain de-risking and we are creating this manufacturing facility for our internal use.
For battery manufacturing, we see significant opportunities given the round-the-clock requirements every state is coming up with now. Battery storage is expected to be 8-9 GW by FY27 from almost negligible now. We are in discussions with a lot of battery manufacturers to get a technology licence to produce batteries in India for ourselves, as well as for the market. We are exploring batteries for the mobility space.
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