Emkay Global Financial Services is bearish on JSW Energy (JSWEL) and has recommended sell rating on the stock with a target price of Rs 53 in its January 23, 2013 research report.
“JSWEL surprised on 3Q13 earnings front as the company capitalized on tailwinds of higher merchant tariffs (Rs4.73/unit in 3Q13 vs. our expectation of Rs4.5/unit and Rs4.6/unit reported in 2Q13), better than expected fuel cost (Rs2.25/unit in 3Q13 vs. our expectation of Rs2.56/unit and Rs2.57/unit reported in 2Q13) as well as saving on auxiliary consumption, which was at historically low levels across almost all the plants. The consolidated sales at Rs23.6bn grew by 34%yoy, driven by 23%yoy increase sales volume (at 4.88bn units) and 11% improvement in average realization (at Rs4.27/unit).”
“We raise our earnings estimates for FY13E and FY14E as we factor in higher merchant tariffs - Rs4.5/unit and 4.25/unit for FY13 and FY14 respectively vs. Rs4.35/unit and Rs4.15/unit respectively. We also assume 5% lower fuel cost. Hence, we increase our earnings by 39% and 20% for FY13E and FY14E respectively. However, sensitivity analysis shows that earnings for FY14E and FY15E can vary by 20-23% for every Rs0.25/unit change in merchant tariffs. Similarly, every 10% change in coal prices can change the earnings estimates by 19-22% over the same period.”
“While we have been wrong the stock recommendation in the recent time, we highlight our concern over high sensitivity of JSWEL earnings’ towards merchant and coal prices with its open business model. Given 1) earnings peak in FY14E, 2) uncertain earnings profile thereafter, 3) negative catalysts in place at FY14end & 4) no growth in medium term, we maintain sell on JSWEL with revised price target price of Rs53. Our revised PT is based on DCF rolled over to FY15E. Higher than expected merchant tariffs and lower than expected spot coal prices are key upside risks,” says Emkay Global Financial Services research report. Institutional holding more than 40% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment
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