Karvy Stock Broking
JSW Energy (Sell)
CMP: ₹84.05
Target: ₹46
It is unlikely that JSW Energy (JSWEL) will be able to increase its capacity in a significant way in the next 4-5 years. As a result, we expect companies such as Adani Power, Reliance Power, Lanco and JSPL to be much larger than JSWEL at the end of FY2014. In addition, the visibility on pipeline projects such as Ratnagiri II (3,200 MW), West Bengal II (1,300 MW) and Jharkhand (1,620 MW) is low, as these projects are still awaiting basic requirements such as land and environmental clearances. So acquisition of Udupi Plant (1,200 MW) is strategically good for JSW Energy. Out of JSWEL’s total capacity of 3,140MW, 55 per cent would be under the merchant route, while Adani’s at 20-22 per cent, CESC’s at 10 per cent, Tata Power’s at 2 per cent, and NTPC’s at 1 per cent. We are of the opinion that the merchant rates would soften further on the back of incremental capacity, and back-out of the State Electricity Boards. On account of declining earnings and vulnerability to forex and imported coal prices, likely lower merchant rates post FY16 due to integration of Southern grids to national grid, we maintain our ‘Sell’ recommendation on the stock.
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