Edelweiss is bullish on JSW Energy and has recommended buy rating on the stock with a target of Rs 93 in its July 23, 2014 research report.
"JSW Energy's (JSW) ~INR3.3bn Q1FY15 PAT was in line with estimates. Healthy merchant prices in the South coupled with efficiency/incentive gains at Barmer buoyed profits. Despite the new transmission line connecting South India, management remains optimistic on merchant prices of ~INR4.5/kwh. This combined with: 1) efficiency gains at Barmer; 2) tie-up of additional ~250MW with JSW Steel from Ratnagiri plant; and 3) compensatory tariff for MSEDCL PPA are likely to enhance earnings. Hence, we are upgrading earnings estimates by 35%/40% for FY15E/FY16E, resulting in revised TP of INR93. Upgrade to 'BUY'."
"JSW reported Q1FY15 PAT of INR3.25bn with INR100mn benefit arising from revised depreciation rates though offset by INR90mn loss in the Toshiba joint venture (JV). Sustained merchant rates (>INR5/unit) in the South coupled with healthy PLF at the Vijaynagar (98%) plant aided profits. Barmer which recorded deemed PLF of 92%, reported PAT of INR950mn driven by efficiency/incentive gains. However, weak demand in the western grid kept the Ratnargiri PLF low at 68% (83% in Q1FY14). The company sold entire banked inventory of 599MUs during the quarter. Coal blending was more towards high calorific value coal (70:30). The company successfully completed the public hearing in June 2014 for 7mtpa Kapurdi expansion. Management is confident of getting final clearance by July end, which will improve lignite availability for Barmer project. Management continues to explore in-organic growth opportunities which make a strategic fit for the company. Management's guidance of merchant rates at ~INR4.5/unit, higher capacity utilisation at both Ratnagiri (likely to conclude tie-up of ~250MW with JSW Ispat to power its 1.7mtpa steel expansion) and Barmer amid benign spot coal prices and recent compensatory tariff order for MSEDCL PPA will enhance earnings. Hence, we are raising our earnings by 35%/40% for FY15E/FY16E, resulting in revised SOTP TP of INR93 (INR51 earlier). We upgrade the stock to 'BUY/SP' from 'HOLD/SP'. In-organic growth options and prior period Barmer tariff recovery pose upside risks to our valuation," says Edelweiss research report.
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