JSW Energy Equity Research

Date of Research – 22 January 2016

Price – Rs. 74.75

About the Company

JSW Energy Limited (“JSW Energy” or the “Company”) is in the business of power generation and transmission primarily in the states of Karnataka, Maharashtra, Rajasthan, Himachal Pradesh, and Chhattisgarh. The Company has its presence across the entire value chain of the power sector including power generation, power transmission, mining, power plant equipment manufacturing and power trading.

Power Generation: JSW Energy currently produces 3,140 MW of power. Additionally, another 8,630 MW of capacity is under various stages of implementation and development.

Operational plants – The Vijayanagar plant produces 860 MW of power. 1,200 MW imported coal-based thermal plant in Ratnagiri, Maharashtra. The Company’s wholly owned subsidiary, Raj WestPower Ltd operates the 1,080 MW lignite-based thermal power plants in Barmer, Rajasthan.

Mining: Acquired lignite mines in Barmer and thermal coal mines in South Africa and has also formed a Joint Venture for the development of a thermal coal block in Odisha.

Power Transmission: Joint venture Jaigad Power Transco Limited is an intra-state transmission system that connects the Ratnagiri power plant to the national grid.

Power Plant equipment manufacturing: The Company has entered into a Joint Venture with Toshiba to manufactures supercritical steam turbines and generators.

Trading: JSW Energy’s wholly owned subsidiary, JSW Power Trading Company Ltd has a trading volumes in excess of 11,000 MU.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations8,934.308,705.429,380.169,968.948,263.43 
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)2,793.193,251.403,623.414,144.593,324.36  
Finance Costs962.791,205.941,137.461,503.151,684.75  
Other income213.43202.21230.11210.04217.00  
Exceptional items196.59377.6934.23(150.00)
PAT (before Minority Interest and share of Associates)912.40776.431,377.081,446.19618.45
Profit/ (loss) attributable to Minority Interest(2.93)5.108.5713.34(6.52) 
Share of profit / (loss) of Associates11.6816.5919.0037.34(4.06) 
Consolidated Profit / (Loss) for the year903.65754.741,349.511,395.51629.03  

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Operating Profit Margin Ratio31.2637.3538.6341.5840.23 
Net Profit Margin Ratio10.218.9214.6814.517.48 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital1,640.051,640.051,640.051,640.051,640.05 
Reserves & Surplus4,060.024,563.714,931.125,877.976,895.78 
Net worth (shareholders funds)5,700.076,203.766,571.177,518.028,535.83 
Minority Interest50.0245.2350.3254.7155.11
Long term borrowings8,717.248,852.678,932.328,062.3512,559.19 
Current liabilities4,672.275,091.593,464.503,455.706,315.07 
Other long term liabilities and provisions30.0432.4332.7936.25233.85 
Deferred Tax Liabilities129.16152.42193.29292.97438.29 
Total Liabilities19,298.8020,378.1019,244.3919,420.0028,137.34 


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets14,644.6114,874.0814,238.6913,634.6022,226.74 
Noncurrent Investments287.08271.42253.50232.72193.18 
Current assets3,114.603,737.703,260.323,645.744,251.15 
Long term advances and other noncurrent assets1,252.511,466.911,481.281,897.281,383.22 
Goodwill on consolidation (net)27.9910.609.6683.05 
Total assets19,298.8020,378.1019,244.3919,420.0028,137.34 

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROE / RONW2.9814.5711.4917.9516.94 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)8,934.308,705.429,380.169,968.948,263.43 
Growth (%)46.01 %(2.56 %)7.75 %6.28 %(17.11 %) 
PAT (Rs. Cr.)912.40776.431,377.081,446.19618.45  
Growth (%)434.72 %(14.90 %)77.36 %5.02 %(57.24 %) 
Earnings Per Share – Basic (Rs. )5.514.608.238.513.86 
Earning Per Share – Diluted (Rs. )5.514.608.238.513.86
Price to Earnings9.9211.6413.378.1016.27

Dividend History

The Company has maintained an average dividend yield of 2.20 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. JSW Energy’s average current ratio over the last 5 financial years has been 0.75 times.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

JSW Energy’s average long term debt to equity ratio over the last 5 financial years has been 1.47 times which indicates that the Company operates with high level of debt and is not placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

JSW Energy’s average interest coverage ratio over the last 5 financial years has been 2.56 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, JSW Energy reported a promoter holding of 74.99 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 14.29 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.