Buy JSW Energy; target of Rs 64: Motilal Oswal

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Motilal Oswal 's research report on JSW Energy

JSW Energy (JSWE)’s results reflected an improved performance in the S/A business YoY, aided by lower interest costs on account of debt reduction. At a consol level, EBITDA rose 21% in 4QFY20. The acquisition of Kamalanga has been put on hold given the uncertainty surrounding recovery in power demand. While we see prudence in JSWE wanting to hold on to cash in the near term, if growth opportunities do not emerge or dividend payout is not increased, concerns may arise over capital allocation. Although, the recent fall in stock price implies the stock remains attractive. Maintain Buy.

Outlook

However, strong FCF generation would continue, aided by tied-up capacities. ~80% of JSWE’s 4.4GW capacity is under long-term PPAs, which generate strong free cash flows. Furthermore, these tied-up PPAs contribute ~95% to the company’s EBITDA. Maintain Buy, with TP of INR64/sh.

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