Of JSW’s existing 4.4GW capacities, more than 80 per cent is already under long-term PPAs and hence will generate predictable cash flows, while another 7 per cent could soon get tied up under the group’s captive needs, further de-risking cash flow, say analysts at Motilal financial services. These acquisitions will boost JSW’s growth further.
Analysts say that while Utkal may have execution risks (refurbishment of Unit-1 and construction of Unit-2) implying that cash flows will start only from FY22, they expect these acquisition to be return on equity (RoE) accretive. The GMR plant is operational and Rupesh Sankhe at Elara Capital expects it to generate 15-16 per cent RoE, which is along the guidance provided by JSW’s management.
Meanwhile, Utkal plant had a PPA with Tamil Nadu at a levelised tariff of about Rs 4.9 per kWh, which JSW plans to revive. Though there could be a downward revision in tariffs, analysts at JM Financial say that even assuming a lower tariff of Rs 3.5 per kWh, the Utkal acquisition appears value accretive as it can deliver RoE of about 40 per cent, given the deep debt haircut (more than 60 per cent) being taken by lenders to the project. Even if the PPA is not revived, assuming merchant sales at Rs 3.2 per kWh and coal purchases from e-auctions, the acquisition can still deliver 14-15 per cent RoE, they add. Not surprising then the Street sentiment is improving.
JSW’s Q2 performance was aided by higher hydro power generation (lifting overall output) while lower fuel costs boosted the operating performance. Hydro power’s net unit generation was up 9.3 per cent with plant load factor (or capacity utilisation) coming in at 102.7 per cent. Lower fuel costs, down 26 per cent year-on-year at consolidated level in line with the declining international coal prices, meant that operating profit margins improved 910 basis points year-on-year in September quarter.