2011

COMPANY RESEARCH REPORT October 28, 2010

COMPANY RESEARCH REPORT
INITIATING COVERAGE

JSW ENERGY LIMITED
RECOMMENDATION: BUY CMP: Rs. 71 TARGET: Rs. 95 HOLDING PERIOD: 1-1.5 Years RISK PROFILE: AGGRESSIVE

INITIATING COVERAGE- ‘BUY’ : JSW ENERGY LTD.

 In a sweet spot due to structural deficit
Power sector plays crucial role in the economic progress of the country given the importance of electricity in the economic activity. Currently, at the end of Jan 2011, the power generation capacity stood at 170.229 GW including the renewable energy sources such as wind, solar etc. of about 16.787GW. However the peak power deficit in Jan 2011 is 11.1% and the normal power deficit is 7.6%. Rapid growth of the economy will place a heavy demand on electric power.  Operative capacity to ramp up at a CAGR of 58% JSW energy’s capacity additions are in full swing with the total operative capacity reaching 6570MW by FY2017 against the management guidance of 12070 MW. We are very conservative in this regard, considering the potential execution delay.

NSE Code: BSE Code: ISIN Code: Reuters Code: Bloomberg Code:

JSWENERGY 533148 INE121E01018 JSWE.BO JSW IN Website: www.jsw.in

Sector: EPS (TTM): PE (TTM): Industry PE: Mkt. Cap (In crores): 52 Wk high: 52 Wk low: P/BV: Beta: Yield (%): Face Value: Debt/Equity: Foreign Institutional Holding:

Power Generation/Distribution Rs.5.13 14.17 21.41 11931.4 Rs.136.3 Rs.68.55 2.10 0.76 1.03 10 1.65 3.94%

 Potential improvement in margin ahead
The company’s margin had affected notably when the fuel cost (coal) went up recently. In FY09 and FY11, the fuel cost per unit reached at high levels i.e. Rs.3.02 and 2.63 respectively. The probable cooling off of the coal prices can bring up the margin. Moreover, the coal mines acquisitions which have been in full swing, when completes, also, would bring down the fuel cost.  Outstanding realizations among the peers despite

concerns.
The company has been maintaining good realization/unit of electricity, compared to the peers. ARPU (average realization per unit) remains in the range of Rs. 4.48 in FY08 to Rs. 4.49 in FY11. The same is estimated at Rs.4 for FY12E.
150.00 100.00 50.00 0.00 13-May-10

JSWE vs Sensex
25000.00 20000.00 15000.00 10000.00 5000.00 0.00 30-Mar-11 08-Sep-10 29-Nov-10 17-Feb-11 01-Apr-10 19-Oct-10 22-Jun-10 07-Jan-11 30-Jul-10

 Outlook and Valuations: Attractive; Initiate Coverage with ‘BUY’
We estimate units generated to post a CAGR of 99% from FY1012E on the back of gigantic capacity build up and an average PLF of 0.75. Accordingly, the top line and bottom line, too, are estimated to grow at a CAGR of 87.8% and 33.9% respectively during the period. Our DCF model with 11.8% discount rate values the company at Rs.95 per share. We initiate coverage with a ‘BUY’ recommendation for a target price of Rs.95. Those with an aggressive risk appetite can consider investing in JSW energy at current level.

JSW Energy

SENSEX

Shareholding Pattern (%) Total of Promoter and Promoter Group Public Shareholding: Institutions Non-Institutions Total Public Shareholding 9.88 13.4 23.28 76.72

..........................................................................‘BUY’ : JSW ENERGY LTD......... Contents Business Summary .................................. 1 Power Generation: ............................................. 15 Financials Graph and Peer Group Comparison ...................................................................................................................................................................................................................................................................................................................................................................INITIATING COVERAGE......................... 3 JSW Energy – Projects Update ............................................................................................................................................................................................................................................................ 2 Power Transmission: ................................... 1 Power Trading: ............................................................................................................................................................................... 12 Risks ................................................................................................................................................................................ 13 Financial Highlights ..................................... 17 ...................................................................................................................................................................................... 4 Industry ...... 14 Financial Ratios ............................................................................................................................................................................................................................................................................................................................. 8 Sensitivity Analysis ............................................................................................... 3 Investment Rationale ................................................................ 16 Analyst Notes And Company News....................................................... 6 Financials & Valuations ............................................................................................................. 2 Equipment manufacture and Mining: ...................................................................................................................................................................................................................................................................................................................................................................

JSW energy. both with backward integration and forward integration. having been involved in the business since 2000. $4 Billion valued Jindal South West (JSW) group. Through this plant alone. coal and lignite mining to procure captive fuel supply for certain of its power generation projects and the manufacture of steam turbines and generators for power plants.A. Karnataka (JSWEL SBU 1). 2011 . Currently. 1 May 3. cement and information technology. with both units generating power using corex gas and coal. 1240 crores (in FY09). now. Business Summary JSW Energy Ltd (JSWEL) is a fast growing power services company that is part of the prestigious. Transmission and power trading and. Power Generation: Chief among various reasons for this impressive performance is the exceptionally high PLF (Plant Load Factor) of the plant. the company’ source of power generation was limited to its 260 MW (2 X 135 MW) unit in Vijaynagar. It is the goal and strategy of the company to become a leading full-service integrated power company in the Indian power sector with presence across the value chain i. already. the firm was able to generate income to the tune of Rs. major chunk of the revenue is derived from power generation. Currently most of its revenue is derived from power generation.e. it has entered into various joint ventures for the development of transmission lines for its power generation projects. infrastructure and logistics. has presence in coal mining. both with backward and forward integration. The group has diversified interests in areas ranging from steel.e. . as a joint venture between the JSW group and Tractebel S. averaging around 83% of the total sales for the last 5 years (FY06-FY10). The company has the distinction of being the first Independent Power Producer (IPP) to set up operations in the state of Karnataka.‘BUY’ : JSW ENERGY LTD. For a considerable period of time (till FY09).INITIATING COVERAGE. aluminum. The power generation business is without doubt the métier of JSW Energy. to the maximum power that could theoretically be generated by the power plant during any contract period. energy. JSW Energy commenced operations in the year 2000 as an Independent Power Producer (IPP). It is the goal and strategy of the company to become a leading full-service integrated power company in the Indian power sector with presence across the value chain i. power distribution business and generation through non-conventional energy sources. The Plant Load Factor is the ratio of actual units of power generated by a plant. setting up a 260 MW power generating unit. of Belgium. minerals and mining. Formed in the year 1994. is aiming to enter distribution. As part of that strategy and with the aim of managing sustainable growth and reducing potential constraints on such growth. It is currently exploring opportunities in coal mine acquisitions. equipment manufacturing. The company has a rather strong expertise in this area. initially installing 2 units of 130 MW each.

for power trading. As of now. 2 May 3. the company secures its power generation revenues through a combination of long term PPAs (Power Purchase Agreements) and short term merchant power sales with various state-owned utilities (SEBs). power trading companies and industrial consumers. The power is sold to state utility boards through short-term power off take arrangements. Power Trading: The Company has been in the power trading The power is sold to state utility boards through short-term power off take arrangements. As far as it sales are concerned.‘BUY’ : JSW ENERGY LTD. JSWPTC sells power of not only the JSWEL but from external power supplies as well. Through its transmission lines the company transmits power from power generation units to state and national grids. the second units of Barmer project (135MW) and Ratnagiri project (300MW) have got commercial operation dates (COD) to take the total operative capacity to 1430 MW. Rajasthan. The second unit (2 X 300 MW) was operationalized in September 2009. In November 2009. JSWEL’s big aim is to reach a target capacity of 11390 MW by 2015. where the price is subject to rapid market demand fluctuations business since 2006 and it is carried out by its subsidiaryJSWPTC (JSW Power Trading Corporation). the company added to its power generation portfolio by commencing the first of its 600 mw (1 X 300 MW) coal plant (JSWEL SBU II). The time period of these short-term arrangements ranges from several hours to 11 months. The other partner in the venture is the government unit-MSETCL (Maharashtra State Electricity Transmission Company Limited). The second units of Barmer project (135MW) and Ratnagiri project (300MW) have got commercial operation dates during FY11 to take the total operative capacity to 1430 MW. where the price is subject to rapid market demand fluctuations. This plant too is located in Vijaynagar. the company has a 1430 MW of operational generating capacity and 1490 MW of generating capacity in the construction or implementation phase. the highest license in India. In July 2009. The Central Electricity Regulatory Commission (CERC) has granted the company with an ‘F’ category license. Power Transmission: Power transmission is another power related area that the firm has been involved in. taking the total capacity to 995 mw by the end of fiscal year 2010. And in FY11. rendered through yet another subsidiary JSWPTL (JSW Power Transco Limited).INITIATING COVERAGE. the firm also started operations of the first unit of its 1080 MW ( RWPL 1 X 135 MW) lignite power plant in Barmer. 2011 .

engineering. JSW Energy – Projects Update Project Ratnagiri I Rajwest I Kutehr Hydro Project Phase I Ratnagiri II Phase I West Bengal Power project Phase I Rajwest Power Ltd. manufacturing. However JSWEL’s stake in the venture is only 20% so it is not expected to contribute much in terms of cost nor 3 May 3. engineering. Both these activities are conducted through joint ventures. assembling and sale of sub-critical and supercritical steam turbines and generators with capacities ranging from 500MW to 1000MW. manufacturing. for the design.INITIATING COVERAGE. Hedge Research In 2008. In 2008. II Phase I Ratnagiri II Phase II Chattisgarh Power project Phase I Ratnagiri II Phase III Kutehr Hydro Project Phase II Rajwest Power Ltd.‘BUY’ : JSW ENERGY LTD. JSWEL signed a deal with Japanese conglomerateToshiba Corporation.Toshiba Corporation. assembling and sale of subcritical and super-critical steam turbines and generators. Equipment manufacture and Mining: Equipment manufacture and mining activities make up the remaining part of the company’s business. II Phase II JSWEL Vijayanagar Ratnagiri II Phase IV Place Maharashtra Rajasthan Himachal Pradesh Maharashtra West Bengal Rajastan Fuel Sub critical imported coal Lignite Hydro power Sub critical imported coal Coal Capacity (MW) 1200 1080 80 800 300 135 800 660 800 80 135 660 800 Expected operational year FY12 FY12 FY14 FY14 FY15 FY15 FY15 FY16 FY16 FY16 FY17 FY17 FY17 Lignite Sub critical imported Maharashtra coal Chattisgarh Maharashtra Himachal Pradesh Rajasthan Karnataka Coal Sub critical imported coal Hydro power Lignite Sub critical coal Sub critical imported Maharashtra coal Source: JSWEL. for the design. 2011 . JSWEL signed a deal with Japanese conglomerate.

The processes of combining different business and management systems so that they may interact with one another and thus be used to enhance an enterprise business strategy. Meanwhile. By 2012. Besides. The Company had acquired a majority stake in SACMH (South African Coal Mining Holding Ltd) in 2009. it would start manufacturing STG sets with a target production capacity of 3000 mega watt per annum by 2014. SACMH is a listed South African Company with coal mining assets in the Witbank region with mines in Ulambu and Illanga. the margins are expected to go up once coal prices come down from the current exorbitant levels The attempts of the company for acquiring a couple of coal mines abroad are in full swing. In the near future. Maharashtra. The attempts of the company for acquiring a couple of coal mines abroad are in full swing. as the price determination will come under the control of the company. In respect of the backward integration.‘BUY’ : JSW ENERGY LTD. The JV is targeting sales of $400 million (around Rs 1.840 crore) only by the end of 2015 fiscal. in the long run. Production under Phase I would commence in 2011 and initially. The company’s mining activities are conducted in the state of Maharashtra and Orissa.INITIATING COVERAGE. which have already been initiated by the company. 2) The business integration model (Both backward integration and forward integration) that the company aiming for makes it a unique one. the margins are expected to go up once coal prices come down from the current exorbitant levels. The mines have reserves of about 50 million tonnes with exportable surplus in the range of 14-20 million tonnes. the company is expected to benefit from the progressing coal mine acquisitions at the international level. fuel security and turbine manufacturing are the areas to be possessed. the unit would produce steam turbine and generator (STG) parts. The Maharashtra mining activity is carried out for the purpose of securing lignite for the (8X 135 MW) 1080 mw lignite plant in Ratnagiri. The Company had acquired a majority stake in SACMH (South African Coal Mining Holding Ltd) through acquisition of shares in Royal Bafokeng Capital (RBC) and the shares of Mainsail which holds an additional 5% in SACMH. 2011 In the outlook. 4 . May 3. will it benefit much in terms of revenue.5 million tpa as also coal preparation plant and railway siding at the mine site. Investment Rationale The key facts which make the stock a flattering one are: 1) A potential margin outlook supported by the coal mines acquisitions which will eventually bring in the fuel prices (fuel costs comprise more than 70% of the total expenditure book) under control. SACMH has allocations in RBCT – Phase V of about 0.

the capacity will touch 6570MW by the fiscal 2017. When we take these projects also into account. as on Q4FY11. figured at 13. the capacity will touch 6570MW by the fiscal 2017. 2011 . Apart from that. currently. which is. When we take these projects also into account. electricity transmission and distribution are the targeted areas. There are some projects in pipeline which are expected to be operational beyond 2015. stands at an operative 1730MW with the commissioning of 2nd phase of Ratnagiri plant. 5 May 3. the energy deficit. JSW Energy Ltd Backward Integration Equipment Manufactu ring Forward Integration Mining Transmissio n Power Trading Distribution (Targeting) Despite the augmented generation in the country. there are some projects in pipeline which are expected to be operational beyond 2015. 3) Company is aggressively in the path of ramping up of electricity generation capacity. of which JSW has entered the former and is sketching to the latter through diversified range of joint venture agreements and subsidiaries.8%.‘BUY’ : JSW ENERGY LTD.INITIATING COVERAGE. as on Q4FY11. the total energy deficit was at 10. As on Dec 2010. The mismatch between the two is unlikely to narrow immensely in the future as the growth in the demand is expected to shoot up in a gigantic way and the capacity acceleration will not be sufficient to meet it. figured at 13.8%. Regarding the forward integration. 4) The huge disparity in the demand and supply of power in the country: Despite the augmented generation in the country. It is expected to add a further 2880MW operative capacity to take the total figure at 4310MW. the energy deficit.1%.

have been under way for several years and while there has been some progress. So far in the 11th five year plan period (2007-08 to 20011-12) the country has added about 37. the country is all expected to fall short of its revised 11th five year plan target to about 63GW. of about 16. 6 May 3.026 GW was renewable energy.787GW. Hedge Research Industry Power sector plays crucial role in the economic progress of the country given the importance of electricity in the economic activity. Reforms in this sector. shortage of power and lack of access continues to be a major constraint on the economic growth.INITIATING COVERAGE. Rapid growth of the economy will place a heavy demand on electric power. solar etc.900 GW of which about 9. the power generation capacity stood at 173.470 GW well below the country's current generation capacity.6%. at the end of March 2011. the country is all expected to fall short of its revised 11th five year plan.1% and the normal power deficit is 7. the lower plant load factors on account of scarcity of fuel/feedstock or less efficient aged power plants as well as high T&D losses and seasonal nature of renewable power capacity. However the peak power deficit in Jan 2011 is 11. 2011 . With the country's peak power demand (as on Jan 2011) being 122.28 52.53 35.626 GW including the renewable energy sources such as wind. 170 82. for making the power sector efficient and more competitive. Currently. Though new generation capacity addition so far in the current five year plan period is greater than what it was achieved in each of earlier plans.‘BUY’ : JSW ENERGY LTD. Expected Operative Capacity Build up (in MWs) 7000 6000 5000 4000 3000 2000 1000 0 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Source: JSWEL.19 Total installed capacity State sector Central sector Private sector Though new generation capacity addition so far in the current five year plan period is greater than what it was achieved in each of earlier plans.

Meanwhile. only 50000 MW is likely to be added. of which the share of thermal power being 76. Meanwhile. only 50000 MW is likely to be added.‘BUY’ : JSW ENERGY LTD.032 MW was only achieved till December 31. AT&C losses of most of the State Power Utilities (SPUs) remain as high as 40% and this has made them financially sick and unable to invest adequately in additional generating capacity.6 GW. the Power Ministry has set a target of 100.374 MW. The greatest weakness is on the distribution front which is entirely the domain of the States. 2010.4 GW. electricity generation 111034 emerged from the lackluster growth witnessed in fiscal 2009 and 37367 19509 equaled its performance in fiscal 2008. the sector is faced with numerous challenges such fuel availability. During fiscal 2010. On one hand with rising demand for electricity as double digit peak demand. hydel power being 20 GW and Nuclear at 3. The double digit peak power deficit is largely on the cyclical slowdown in the industrial sector which began in fiscal 2008 got 169748 compounded by the global slowdown and was arrested only at the beginning of fiscal 2010. the total energy deficit came down to 10.000 MW of power capacity addition in the upcoming Twelfth Plan (2012-17).000 MW of power capacity addition in the upcoming Twelfth Plan (2012-17) (2012-13 to 2016-17). This was achieved despite 16787 4560 constraints imposed by inadequate availability of coal and the dismal hydel-generation scenario due to sub-normal monsoon. Indian Energy sources The originally envisaged target for current five year Plan at the start of the plan period was 78 GW and was later revised to 62.374 MW. At the end of the plan. 2011 . 2010. In the fiscal 2010.INITIATING COVERAGE. At the end of the plan. the share of super critical technology is all set to increase to 59% (or 43640 MW) of the coal generation capacity in the 12th five year plan. Though super critical technology projects were introduced in the 11th five year plan period in a smaller way. mainly due to increase in electricity generation. Capacity addition of 32. In the 12th five year plan period the country is envisaging a technology transition with embrace of super critical technology in a bigger way. The availability of gas from the KG basin Source: CEA (D6) resulted in better utilization of capacity and higher Plant Load Factor (PLF) as high growth in electricity generated from gas based plants.1% from 11% during the fiscal 2009.032 MW was only achieved till December 31. 7 May 3. the Power Ministry has set a target of 100. Capacity addition of 32. poor financial conditions of state electricity boards as well as various project risks ranging from funding to environmental etc. The originally envisaged target for current five year Plan at the start of the plan period was 78 GW and was later revised to 62. This is largely on account of environmental issues as well as delay in coal linkages etc apart from equipment supply delays.

we expect. The same is estimated to be averaged at 66% for FY11-12E. The FY11 financials. including ultra mega power projects (UMPPs). has a more or less balanced mix of merchant power and Power purchase agreements (PPAs) in the sales portfolio. these utilities have had only limited success in attracting private investors to set up power plants. which was mainly on account of a surge in the fuel cost. The PPAs (Power Purchase Agreements) and short term merchant power sales are with various state-owned utilities (SEBs). The FY10 seems to be a resumption of growth for the company from the badly affected financial figures of FY09. FY09 and FY10 respectively. The Centre. 8 May 3.INITIATING COVERAGE. The greatest weakness is on the distribution front which is entirely under the domain of the States. too. in accordance with the capacity ramp up. Revenue Break up 10000 8000 6000 4000 2000 0 PBDT PBT PAT Revenues PBIDT Source: JSWEL. Government of Chhattisgarh (GoCG) etc… Merchant power sales are estimated on an average of 66% for FY11-12E. power trading companies and industrial consumers like West Bengal Mineral Trading and Development Corp (WBMTDC). In FY09. 2012.46%. with a view to encouraging generation and reducing transmission and distribution losses. the profit after tax saw a decline of 32. 2011 . 61% and 71% respectively for FY08. Hedge Research. announced extension of tax holiday for the power sector by one more year till March 31.‘BUY’ : JSW ENERGY LTD. For the same reason. while the top line remained flat. the top line to grow at a CAGR of 99% during FY10-12E. have been decent with the sales shooting up by 82%. Financials & Valuations Top line to grow at a CAGR of 99% The financials look impressive with both the topline and bottom line inching up by 49% and 46% respectively. The extension of tax break is part of the government's efforts to scale up the power generation capacity to meet the growing needs. The former to total sales were 68%. The tax exemption would benefit projects that are expected to take off in the remaining period of the XI Plan (2007-12). Ace Equity Balanced Sales mix JSW Energy. unlike others. AT&C losses of most of the State Power Utilities (SPUs) remain as high as 40%. Going forward.

81 351. Ace Equity.41 1499.19 Q3FY10 1203.12 Q1FY11 1260.16 Q3FY11 1605.INITIATING COVERAGE.68 Q4FY11 2013 1000 Million Units (Kwh) Source: JSWEL.59 FY11 6004 3012 FY12E 13600.8 641.‘BUY’ : JSW ENERGY LTD.56 Q1FY10 416. Hedge Research 9 May 3.125 Quarterwise Sales Mix 3500 3000 2500 2000 1500 1000 500 0 Q3FY09 Short term sales Long term sales 374 159 Q4FY09 300.44 217.8 573.37 Q2FY11 1139.8 104.2 Q2FY10 859. Yearwise Sales Mix 25000 20000 Million Units (Kwh) 15000 10000 5000 0 FY05 Short term sales Long term sales 0 1826 FY06 833 1071 FY07 1527 386 FY08 1425 643 FY09 1259 797 FY10 3671.0 444.96 Q4FY10 1217.6 566. 2011 .12 7006.3 790.

Realization to endure at reasonable levels despite the concerns Since the short term sales put in higher realization for the company. 2011 . We expect the average realization to be Rs.5 4.3 FY08 FY09 FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 FY11 FY12E Source: JSWEL. Though there is a potential for marginal upside movement in the price.48 4.36 4 3.49 3.34 4.41 5.87 4. Average Realisation/Unit Short term Realisation/Unit Long term realisation 7. which interrupted supplies from the world's top thermal coal exporter. Huge demand for energy resources in China and India has pushed the price of thermal coal to an all time high.4 for FY12E.08 6 5.65 4. 10 May 3. The price of coal has been buoyed by flooding in Australia's coal-rich state of Queensland. We expect the same to remain at Rs. Hedge Research No significant room for change in our valuation by fuel cost Though there is a potential for marginal upside movement in the coal price.25 4.59 4.44 3.44 in FY10 and has been hovering in a range of Rs.77 5. 4 for FY12E. the higher proportion of short term sales translates into the better average realization.97 4.43 3. it is not likely to affect our valuation significantly as we have factored in the fuel cost at higher levels.INITIATING COVERAGE. 4 -4.63 4.59 4. it is not likely to affect our valuation significantly as we have factored in the same at the current higher levels.5. The fuel cost has been skyrocketed to a higher level in the last couple of years and now stands in $120-$130/ton range.4.2 3.‘BUY’ : JSW ENERGY LTD. which stood at Rs. Thermal coal is the largest source of energy for the generation of electricity worldwide. Fuel cost has been one of most sensitive factors to the stock.95 4.09 4.

95 per share to JSW energy.95 per share.‘BUY’ : JSW ENERGY LTD. We see the same for FY12E as Rs. came down and bounced back in FY10 and FY11 respectively. driven by a gigantic ramp up in the capacity and consistent realization rates. 2011 . the fuel cost/unit had shot up to an all time high of Rs. It.48 respectively 1 0. Hedge Research.3.1697 crore and 842 crore respectively.5 We see the fuel cost per unit for FY11E and FY12E to be Rs. Ace Equity The fuel cost per unit of the company has been quite volatile since FY08. the profits is expected to grow at a CAGR of 34% during FY10-FY12E Profit to post growth at a CAGR of 34% With the surge in the coal price and other components in the expenditure book.02 in FY09 on account of the surge in the international coal price to $125/ton in FY09. the profits are expected to grow at a CAGR of 34% during FY10-FY12E. As the company is highly depending on coal as fuel. 2.2.48. Having accounted for the skyrocketed coal price.5 3 2. the EBITDA and PAT growth confined to the tune of 32% and 13% respectively for FY11 to touch Rs. Fuel cost per unit 3. we have used a discount rate of 11.73 and 2. then. 11 May 3. Discounted cash flow values the stock at Rs.8% upside from the current market price of Rs. Having accounted for the skyrocketed coal price. It has 33. Our valuation model based on ‘discounted cash flow’ gives a value of Rs.INITIATING COVERAGE.71.5 2 1.5 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E Source: JSWEL.8% for the model.

5.75 5200 5500 5800 6200 3.75 0.00 0.3. 2011 .25 169 151 133 110 4. Average Realization per Unit Load Factor @0. the stock could move amid Rs.25 89 133 178 223 4.‘BUY’ : JSW ENERGY LTD.85 3. Average Realization per Unit Coal Price @5800 0.75 and 4.75 16 56 95 135 4 52 95 137 179 4.75 0. PLF in the range of 70% to 85% and the coal price between Rs. the coal price between Rs.88 and 156 when we take the ARPU at Rs. 5200 and 6200/ton and the ARPU in the range of Rs.5 207 190 172 149 When we consider the plant load factor at 75%.4.75 and 4. we also found that the stock may move in the range of Rs. We have done a sensitivity analysis of share price to those factors. PLF between 70% and 80% and ARPU between Rs.5.85 5200 88 130 172 215 5500 70 112 155 197 5800 52 95 137 179 6200 29 71 113 156 Also. plant load factor and realization per unit (ARPU).3. the stock is found to have potential to move in the range of Rs.5 125 172 220 267 Taking the coal price constant at Rs.70 PLF 0. Coal Price ARPU @4.80 0.16 to 267.70 0.5800/ton.75 91 73 56 32 4 130 112 95 71 4.INITIATING COVERAGE.91 and 149. Sensitivity Analysis It has been found from our analysis that JSW energy is very sensitive to the factors like coal price. Coal Price PLF 12 May 3.80 0.5200 and 6200/ton.

India’s annual thermal coal production growth is slowing — to 1-2 per cent now from 6-7 per cent earlier. which further puts brakes on the plant process. Since domestic coal supply constraints remain to continue. given the nuclear crisis in Japan. given that about 46 per cent of its planned capacity. Recently. In the long run. India’s annual thermal coal production growth is also slowing — to 1-2 per cent now from 6-7 per cent earlier. though it remains well above the PPA rate. The situation could have been better.‘BUY’ : JSW ENERGY LTD. some public and private sector entities have embarked upon imported coal as a means to bridge the deficit. Fuel availability and its high leveled price is the chief problem that the company faces. While this is expected to secure coal supplies it has again thrown upon further challenges. Thermal coal — a key input for power generation — has become costly in the global markets in the recent months. Further. Experts believe that the non-operational status of majority of these blocks is attributed to land acquisition (R&R) issues. the sector reels under certain major issues which act as a bottleneck for the growth of the industry.390 Mw. Risks But among all these. about 11. JSW Energy’s earnings and stock valuations are highly sensitive to availability of coal and its prices. developing and operating coal mines in international geographies. This has led to some Indian entities to take upon the task of purchasing. Supply constraints for domestic coal remain and are expected to continue going forward. Due to environmental concerns. any increase in preference towards coal-based power plants would only lead to further pressure on coal prices. Due to environmental concerns. had the supply of domestic coal (which costs less) been sufficient. too.INITIATING COVERAGE. stand as another concern as almost 67 per cent of JSW’s current capacity caters to merchant power sales. 2011 . as only 24 blocks have become operational out of the total 210. is dependent on imported coal. the inability to lock in the cost and the downward trend of the merchant rate are seemed to be the key concerns for the company. Coal India lowered its production growth to 3 per cent. The failure to achieve the planned target from the captive coal blocks presents itself as a major challenge to the power sector. industry estimates suggest that demand from China and India could hold the price at current levels or more. 13 May 3. permit delays and infrastructure problems. Hence. Declining merchant power realization rates. The rate is always competitive and bound to volatile.

36 0.50 Mar-09 1835.78 367.69 336.52 Total Debt 7870.87 1003.00 Mar-08 1293.61 PBIDT 1287.05 Reserves and Surplus 3138.23 1766.24 625.76 Adjusted EPS 4.16 1303.65 502.99 488.64 Total Assets 12665.02 1852.39 850.66 3365.00 0.80 High Price (Unit Curr.38 Equity Dividend % 7.96 Cash Flow from Investing activities -3582.14 Capital Employed 12665.82 3365.27 683.49 Cash Profit 881.02 4.84 CEPS 5.14 1326.85 0.10 -1226.90 546.14 Free Cash flow -2422.19 -2251.00 0.73 294.99 3461.84 276.79 762.44 Cash and Bank balance 604.90 Low Price (Unit Curr.31 -1604.) 123.17 548.60 20.89 Investments 1434.09 Total Income 2429. 2011 .00 20.56 Application of Funds Gross Block 3683.) 111.56 Cash Flows Cash Flow from Operations 846.55 PBT 867.07 416.90 Market Capitalization 18335.08 1467.65 PBIT 1151.94 0.26 Total Expenditure 1141.68 909.31 Cash Flow from Finance activities 4386.00 Source: Ace Equity 14 May 3. Financial Highlights DESCRIPTION Mar-10 Inc / Exp Performance Gross Sales 2355.85 PAT 745.14 1478.00 2.INITIATING COVERAGE.07 170.30 1139.87 514.71 5927.03 468.47 175.57 932.82 Net Current Assets -267.31 -4045.76 488.84 -3540.) 99.59 Sources of Funds Equity Paid Up 1640.16 7422.47 5.19 7422.86 0.55 Price / Book Value(x) 3.29 Market Cues Close Price (Unit Curr.00 0.‘BUY’ : JSW ENERGY LTD.03 1169.30 801.00 2.83 Total Current Liabilities 1900.47 Net Worth 4778.31 0.63 2272.

79 Growth Ratios Net Sales Growth(%) 28.26 0.75 -58.82 24.59 -1.50 Margin Ratios PBIDTM (%) 54.00 19.05 15.58 62.54 Sales/Fixed Asset(x) 0.64 20.06 Mar-09 5.03 18.55 EBIT Growth(%) 135.65 Current Ratio(x) 0.32 65.90 Pre Tax Margin(%) 36.78 0.67 Debtors Turnover(x) 11.32 0.04 9.05 10.06 2.‘BUY’ : JSW ENERGY LTD.13 0.06 0.75 Book Value (Rs) 29.00 0.47 Asset Turnover(x) 0.38 43.80 1.38 DPS(Rs) 0.00 27.86 5.50 7. Financial Ratios Description Mar-10 Operational & Financial Ratios Earnings Per Share (Rs) 4.75 Adj DPS(Rs) 0.92 26.15 4.23 Inventory Turnover(x) 11.30 25.43 EPS Growth(%) -10.90 -39.01 2.31 1.93 Quick Ratio(x) 0.88 18.63 -42.INITIATING COVERAGE.14 Adjusted Book Value (Rs) 29.00 15 .85 PATM (%) 31.68 EBITM (%) 48. 2011 Mar-08 12.50 41.47 70.55 -55.80 17.60 PAT Growth(%) 169.42 ROE (%) 23.) 4.79 58.34 Core EBITDA Growth(%) 134.83 ROCE (%) 11.36 5.24 4.10 Dividend Pay Out Ratio(%) 16.55 CEPS(Rs) 5.32 4.55 Adjusted EPS (Rs.00 29.13 22.28 0.02 2.14 Tax Rate(%) 14.47 0.61 Source: Ace Equity May 3.66 1.72 Interest Cover(x) 4.65 CPM(%) 37.31 2.89 17.29 9.43 Performance Ratios ROA (%) 7.94 48.00 2.29 1.35 52.08 18.97 16.97 Sales(x)/Working Capital -8.21 Financial Stability Ratios Total Debt/Equity(x) 1.34 58.

Financials Graph and Peer Group Comparison Financials Graph 90000000000.0 1.81 19.04 FY11 44280000000.0 3.98 23.78 1.54 12.Power Tata Power NTPC Adani Power NHPC Year End 201003 201003 201003 201003 201003 Net Sales 20.00 10000000000.85 82.15 Source: Ace Equity 16 May 3.91 10.84 48311.‘BUY’ : JSW ENERGY LTD.00 30000000000.56 Adj.38 32.20 FY12E 83800000000.19 39. EPS(Rs) 2.47 12.12 FY09 18350200000.00 Revenues 0.0 4.57 ROCE% 4.74 4783.21 FY10 23550900000. 6252700000. 8.00 FY08 Revenues PAT EPS PE 12930000000.52 ROE% 4.08 16021.00 50000000000.20 8.89 2138.72 18985.09 43. 2011 .55 16.00 60000000000. 13388500000.13 14.00 40000000000.7 275.00 20000000000.02 8.16 8.32 PBIDT 717.17 PAT 683.64 2.7 170 2277.93 PAT 19.86 5227.98 63.00 70000000000.5 PATM% 0 11.72 0.21 16.03 4442.77 PBIDTM% 3459.26 18. 8420000000.5 434.64 8837.0 5.12 43.74 14.22 10.93 PE EPS Source: Multiple Sources Peer Group Comparison (Consolidated) Company Name Rel.04 14.INITIATING COVERAGE.00 80000000000. 7454900000.84 19.41 91. 2766900000.73 4.69 43.

INITIATING COVERAGE.‘BUY’ : JSW ENERGY LTD. Analyst Notes And Company News 17 .

Kochi– 682017.INITIATING COVERAGE. This report is prepared for private circulation only. Fundamental Analyst: Muhammed Aslam E Jr.HedgeEquities.com DIRECT ALL RESEARCH QUERIES TO: Research & Strategies Group Hedge Equities Ltd 12 Floor. Fundamental Analyst: Neha Mahajan Sr. is made by Hedge Equities Ltd. 18 . -Mini Muthoot Tech Towers Kaloor.k@hedgeequities. express or implied.m@hedgeequities.com Krishnan Thampi K Head of Research and Strategies Email: krishnanthampi.c@hedgeequities. none of the information in the research report is intended as a prospectus within the meaning of the applicable laws of any jurisdiction. Moreover.com Amar Chandramohan Sr. Past results do not guarantee future performance. The information and opinions contained in our research reports have been compiled or arrived at from sources believed to be reliable in good faith.com HEDGE RESEARCH & STRATEGIES GROUP Head of Research: Krishnan Thampi K Sr. any security. Fundamental Analyst Email: amar. Equity Technical Analyst: Anish Chandran C V Sr.e@hedgeequities.com Ph: (0484) 3040400. Kerala.com Disclaimer The information contained in our report does not constitute an offer to sell securities or the solicitation of an offer to buy. but no representation or warranty. 3040419 In co-operation with: Neha Mahajan Fundamental Analyst Email: neha. Fundamental Analyst: Amar Chandramohan Jr. to their accuracy. you should be aware of the fact that investments in securities or other financial instruments involve risks. India Phone: (0484) 3040400 Email: research@HedgeEquities. The information in our report is not intended as financial advice. Commodity & Equity Technical Analyst: Kesavamoorthy B Futures & Options Analyst: Yunus Ismail Access all our research reports online at www. Moreover.‘BUY’ : JSW ENERGY LTD. Researched and prepared by: Muhammed Aslam E Fundamental Analyst Email: muhammedaslam. Hedge Equities Ltd does not undertake the responsibility for any investment decision taken by the readers based on this report.