JSW Energy - Tariff Approval

BSE Index Analysis, Securties , Standard Experts 

JSW Energy : 

Rajasthan Tariff Approval - Key Trigger

Reco : Buy    

Cmp : 50    

Target : 57

JSW Energy strong Q4 operational performance was led by (a) reduced fuel costs (down 5% QoQ) on softening of international coal prices and stronger INR, (b) Rajasthan project operating at 80% PLF post tariff approval by state regulator in Q3FY12, and (c) merchant realization at Rs 4.33/ kWh (up 2% QoQ).

Rajasthan project continues to be an overhang: The state regulator has given an adhoc interim tariff approval of Rs 3.34/ kWh for FY13 vs. cost of Rs 3.45. Hence the project will continue to make losses in FY13.  We expect the final tariff approval that would allow the project to earn normative RoEs of 15.5% would come in FY14. If final tariff is approved in FY13, we see an immediate upside of ~25% from CMP. Also, the management guided for commissioning of remaining units by H2FY13 vs. June Ⱳ earlier.

Reduce estimates, Maintain BUY: We reduce our FY13 and FY14 EPS estimates to Rs 5.4 (Rs 7.4 earlier) and Rs 6.3 (Rs 8.2 earlier) respectively to factor in (a) delay in final tariff approval and late commissioning of balance units at Rajasthan project, and (b) higher fuel cost (as we now assume entire coal to be sourced from spot markets vs. 75% earlier). Our revised TP of Rs 57 (9x FY14E EPS) vs. Rs 75 earlier implies 13% upside from CMP of Rs 50.