Cholamandalam securities' research report on JSW Energy
Aggressive capacity expansion from present installed capacity of 6.6 GW to 9.77 GW by end of FY’26 (Growth of ~50%). Major of this expansion (~80%) will be through renewables: wind, solar and hydro power projects. By FY’26, around 61% of its installed capacity will be of renewable sources of energy. 2. Doubling of profitability in next 3 years: With commissioning of upcoming generation capacities the company’s net profit is likely to more than double from Rs.1480 (FY’23) to over Rs. 3000 crores by FY’26e. To be noted this will be just on the basis of higher power generation. Benefits of operating and financial leverage will play out from FY’27 that’s an additional bonus. 3. Protected Cash Flows and Profits: Going by management representations and our understanding of the same around 85% of JSW Energy’s off-takers are long term PPA tie ups with 21% tied up in group captive and 64% tied up with Government bodies for 25 years or more. This provides stability in cash flows for the long term. Remaining 15% is sold in the open market which is an added benefit for the company, as generally merchant tariff is higher. 4. Future is storage technology: The company is pioneering in energy storage technologies. JSW Energy has demonstrated its forward-thinking approach by investing in solar power battery storage and hydro pump storage. The company can store excess energy during peak production periods and deploy it during peak consumption periods. These energy storage solutions enable the company to address the intermittency challenge associated with renewable energy. 5. High entry barrier. Setting up a power plant is highly capital intensive. Approximately, for setting up 1GW plant around Rs 5,500/6000 crores is required for thermal, Rs.6,500 crores for wind, Rs.4,500 crores for solar and Rs.12,000 crores for Hydro. It is highly regulated.
Outlook
Valuing the company at 10% discount to mean PER multiple (19x) on FY26e (EPS), per share target price comes at Rs.327. Based on DCF per share value comes to Rs. 529. For the purpose of valuation, we have taken ~average of PER and DCF based per share value, to arrive at per share target price of Rs. 430.
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