JSW Energy: Up 49% in 2023 so far, should you still buy the stock?

The stock has already risen 37 percent in the last 1 year and 49 percent in 2023 YTD, giving positive returns in 7 of the 11 months so far. It has gained over 6 percent in November so far after a 12 percent fall in October. However, it gave 4 straight months of positive returns before that between June and September, jumping over 72 percent in this time.

Its current 9.8 GW capacity comprises of 3.8 GW of thermal capacity (incl. merchant), 3.6 GW of wind, 0.6 GW of solar & 1.6 GW of hydro, informed Ventura.

Over the period from FY23 to FY30, the firm is expected to add another 10.2 GW of RE projects at an estimated capex of ₹74,000 crore, added the brokerage.

Apart from power generation, the company also forayed into the new age business of green hydrogen and derivatives and solar module manufacturing with capacities of 3,800 TPA and 1 GW, respectively.

“Going ahead, we expect the company’s revenue to reach ₹18,700 crore (at 21.9 percent CAGR) on the back of 12.3 GW of capacity coming up by FY26. The EBITDA is expected to grow 3.5x to ₹10,667 crore with the optimization of acquired RE assets (Mytrah) and an increased mix of high-margin merchant demand. As a result, EBITDA margins are expected to enhance to 57.1 percent by FY26 from 31.8 percent clocked in FY23,” forecasted the brokerage.

Risks to its thesis include: (1) Change in regulatory policies. (2) Volatility in natural factors affecting power generation.

Ventura further stated that its investment rationale stems from the following:

• The company has shown accelerated growth in the renewable energy segment with a pan-India presence and high EBITDA margins.

• The company has shown strong commitment towards capacity additions and aspires to double the capacity to 20GW by FY30 providing strong visibility of revenues and growth.

• The company enjoys a first-mover advantage in the new-age businesses of battery storage and green hydrogen.

• The company has a strong balance sheet position, which can cater to the expansion and enable the maintaining of a comfortable D/E ratio and coverage ratios.

Valuations

“We have used the DCF model to value JSW Energy as we have long-term revenue visibility with defined project life and tariffs. Already 10GW of projects are near completion/ operational & JSW aspires to ramp up generation capacity to 20GW by FY30. Since the incremental plant capacity is futuristic, we have assigned probability weights to the cash flows from the futuristic projects. Our DCF-based price target works out to ₹530 per share representing a potential upside of 26 percent from the CMP of ₹421 per share. We recommend a BUY,” explained the brokerage.

Bull and bear case scenarios

Bull case scenario: In this, the brokerage has a target price of ₹573, indicating an upside of 40 percent. It assumes higher probabilities for the future cashflows generated through capacity expansions over 10GW. The weights starting from 100 percent for FY25 have been uniformly reduced by 5 percent.

Bear case scenario: In this, the brokerage has a target price of ₹511. It assumes lower probabilities for the future cashflows generated through capacity expansions over 10GW. The weights starting from 100 percent for FY25 have been uniformly reduced by 15 percent.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Updated: 28 Nov 2023, 06:04 PM IST