JSW Energy banks on increased capacity and government’s renewables push

JSW Energy Ltd is in a phase of rapid expansion, leveraging its execution capabilities and the government’s push to increase renewable energy (RE) capacity. RE currently comprises about 13% of its total power generation, so demand prospects are appealing. Still, the company needs to carefully evaluate the profitability of its projects, a dent in which could reduce its cash flows, especially given the fluctuations in commodity prices.

JSW Energy is undertaking several projects in three broad areas – RE generation, energy storage, and energy products. In RE, 1.9 GW of projects are under construction and it has received a letter of award (LoA) for another 6.6 GW. A LoA for 200 MW of wind-solar hybrid power received from Mahadiscom on Tuesday further boosts its pipeline. As such, total installed capacity is projected to rise from about 7.5 GW now to 10 GW by the end of FY25 and 20 GW by FY30.

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The energy storage projects are meant to store power generated from renewables and ensure round-the-clock power. The company is undertaking 4.2 GWh of such projects, about 60% of which are tied up with government agencies.

Energy products include things like solar modules and green hydrogen. The company received approval to set up a 1 GW solar wafer, cell and module manufacturing unit with ₹320 crore in incentives under the government’s production-linked incentive (PLI) scheme. It has also received approval to produce 6,500 tonnes per annum (tpa) of green hydrogen under another government initiative. Another 3,800 tpa green hydrogen pilot plant for group captive use is to be commissioned by March 2025.

Double the capex

The company has guided for capex of about ₹15,000 crore in FY25, almost twice the ₹8,000 crore it spent on capital in FY24. A qualified institutional placement (QIP) of ₹5,000 crore in April helped lower its net debt-to-equity ratio to 0.9 at the end of June from 1.3 at the end of March. Project cost escalations and weak earnings from existing projects are potential stressors for the balance sheet.

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Ebitda grew by 16% in the June quarter, aided by higher power generation and lower fuel cost. Growth was much higher at 64% in FY24. The company commissioned one unit of its thermal plant in Q1 and is expected to commission the second in Q2.

Investors seem to have captured most of the positives, going by the stock’s 112% rally over the past year. Valuations are no doubt pricey. The stock trades at an EV-to-Ebitda multiple of 16.2x and price-to-book multiple of 4.2x, based on Bloomberg estimates for FY26. But swift commissioning of projects in FY25 and additional projects with government incentives could support such a valuation.

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