On the back of strong stock returns, healthy growth outlook, strong financials, and India’s aspiration to improve power generation capacity, brokerage house Ventura Securities has initiated coverage on JSW Energy with a “buy” call and a target price of ₹530, indicating an increase of 34 percent over the next 24 months.
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 more than 6 percent in November so far after a 12 percent drop 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 consists of 3.8 GW of thermal capacity (including merchant), 3.6 GW of wind, 0.6 GW of solar and 1.6 GW of hydro, Ventura informed.
During the period from FY23 to FY30, the company is expected to add an additional 10.2 GW of RE projects at an estimated capex of ₹74,000 crore, the brokerage added.
Apart from power generation, the company has also ventured into the new-age business of green hydrogen and derivatives and solar module manufacturing with capacities of 3,800 TPA and 1 GW, respectively.
“Furthermore, we expect the company’s revenue to catch up ₹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 increased mix of high-margin dealer demand. As a result, EBITDA margins are expected to improve to 57.1 percent by FY26 from 31.8 percent in FY23,” the brokerage forecast.
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 to 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 that can serve the expansion and enable the maintenance of a comfortable D/E ratio and coverage ratios.
Ratings
“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 expand generation capacity to 20GW by FY30. Since the incremental plant capacity is futuristic, we assigned probability weights to the cash flows of the futuristic projects. Our DCF-based price target works for ₹530 per share representing a potential of 26 percent of the CMP of ₹421 per share. We recommend BUY,” the brokerage explained.
Bull and bear scenarios
Taurus case scenario: In this, the brokerage has a target price of ₹573, indicating an increase of 40 per cent. It assumes higher probabilities for the future cash flows generated by capacity expansions above 10GW. The weights 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 cash flows generated by capacity expansions above 10GW. The weights from 100 percent for FY25 have been uniformly reduced by 15 percent.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Updated: 28 Nov 2023, 18:04 IST
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