Can JSW Energy’s Green Energy Dreams Soar Higher with its 554% Return?

Let’s talk about one of the biggest challenges we’re facing today: climate change. Countries worldwide are finally stepping up to this problem. 

Take India for instance. The country has a mission to reach net zero emissions by 2070, and by 2030 the country is aiming to produce about half of cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.

Now, let’s talk about JSW Energy. This company has fully recognized the urgency for climate action and is working to make an impact for the shift towards a more sustainable world by achieving its 2030 sustainability targets. It has a target to achieve more than 50% reduction in carbon footprint by 2030, and achieve carbon neutrality by 2050.

The shares of the company have increased the wealth of the shareholders substantially, giving a multibagger return of 554 percent over the last three years. Just over the last one year, the stock has surged over 140 percent.

The shares of the company also hit 52 week high on April 2, 2024 as the board decided to raise ₹5,000 crore through qualified institutional placement (QIP). So, let’s delve deep into the company to understand if there is any investment opportunity present in this company.

Industry Overview Of JSW Energy

India ranks among the largest producers and consumers of electricity globally, boasting a total installed capacity exceeding 416 GW by the end of FY2023. 

The rise in electricity demand is fueled by factors such as population growth, urbanization, industrialization, and improved standards of living, resulting in increased access to electricity.

Additionally, India stands as a prominent producer of renewable energy, with renewable sources constituting 41% of the total installed capacity. 

As of FY2023, the country has a capacity of 172 GW of renewable energy, including hydroelectric power, which contributes 22.5% to the total energy production in India.

Corporate Overview Of JSW Energy

JSW Energy, one of India’s biggest independent power producers, is the energy division of India’s premier conglomerate, the JSW Group. Over two decades ago, the organisation began with a single power plant in Karnataka and has since expanded to a presence in ten states across India.

Its energy producing capacity is a mix of thermal, hydroelectric, wind, and solar electricity, with a total capacity of 9.8 GW, of which 6.6 GW is installed and 3.2 GW is under construction and scheduled to be operational by calendar year 2024.

JSW Energy is addressing the growing demand for green energy solutions by expanding the proportion of renewable energy in its energy mix.

During the fiscal year 2023, JSW Energy completed the acquisition of 1,753 MW of renewable assets from Mytrah Energy (India) Private Limited (MEIPL), which included 1,331 MW of wind capacity and 422 MW of solar capacity operating largely in southern, western, and central India.

Apart from solar and wind energy projects, JSW Energy is also focused on ensuring stable and trustworthy power supplies. They’re doing this by investing in Energy Storage Solutions like hydro pumped storage and battery energy storage systems. 

Additionally, they’re venturing into ‘electrons to molecules’ territory by securing India’s biggest green hydrogen capacity. This move aims to support green steel production.

Business Segments Of JSW Energy

JSW Energy has three main business segments : Power Generation, Power Transmission and Power Trading. The revenue contribution from the thermal stands highest at 83 percent followed by renewables at 14 percent.

Power Generation

The company’s main focus lies in generating power through both thermal and renewable sources. With a current installed capacity of 6.6 gigawatts (GW) and an additional 3.2 GW under construction, their total portfolio stands at 9.8 GW. Among this, renewables make up 61%, while thermal accounts for 39%.

Power Transmission

A reliable electricity supply relies on an effective power transmission infrastructure. Jaigad Power Transco Limited (JPTL) is a joint venture between the Company and Maharashtra State Electricity Transmission Company Limited, with a 74:26 ownership split. Within JPTL, two 400 kV transmission lines are currently in operation.

Power Trading

Nearly twenty years back, JSW Energy introduced JSW Power Trading Company Limited (JSWPTC) as a step toward realizing its goal of becoming a comprehensive power company. Over time, JSWPTC has emerged as a prominent player in the Indian power trading sector. 

It holds a category “IV” license sanctioned by the Central Electricity Regulatory Commission, allowing it to trade electricity across India. Additionally, JSWPTC is affiliated with major energy exchanges including the Indian Energy Exchange (IEX), Power Exchange of India Limited (PXIL), and Hindustan Power Exchange Limited (HPX).

Financials Of JSW Energy

In the fiscal year 2023, JSW Energy saw an increase in revenue, surging by 26.5% to reach ₹10,332 crore as opposed to ₹8,167 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a  Compound Annual Growth Rate (CAGR) of 8% in revenue.

On the other hand, there was a noteworthy downturn in net profit, experiencing a 15% decrease from ₹1,743 crore in FY2022 to ₹1,480 crore in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased 11% CAGR.

In FY23, JSW Energy maintained favourable financial metrics with a Return on Equity (ROE) of 7.93% and Return on Capital Employed (ROCE) of 6.66%.

Future Plans Of JSW Energy

Capacity Expansions

JSW Energy fulfilled its commitment to ramp up its installed capacity to 10 GW up to FY25 in due course. The capacity additions were driven by the RE segment in which ~1987 MW in the last 12 months. 

The renewable energy (RE) portfolio is divided into different segments, with wind accounting for 61% of the RE capacity, hydro making up 27%, and solar constituting 11% of the RE capacity.

The RE portfolio is further segmented into wind (61% of the RE capacity), hydro (27% of the RE capacity) and solar (11% of the RE capacity). The company has 5 RE projects and 1 Thermal project under construction or partially commissioned.

Thermal Merchant Mix and Strong PPA profile 

JSW Energy is coming up with a 700 MW capacity Ind- Barath thermal plant in Utkal, Odisha along the coal belt in India. This plant will cater only to merchant demand for approximately 2 years according to the management. 

This will yield a better rate for the output generated. Due to lower base load capacities, the volumes on the energy exchanges have been increasing with the growing demand. This is an advantage the company intends to use.

The company has managed to maintain a strong Power Purchase Agreement (PPA) profile with almost 86% of total generation capacity being tied up for long-term contracts. This provides a stable growth lock in and long-term revenue visibility as these contracts are generally for a tenure of approximately 25-30 years.

Conclusion

With a strong focus on renewable energy and a robust expansion plan, JSW Energy is well-positioned to capitalize on the growing demand for sustainable energy solutions. The company’s diversified portfolio, long-term PPAs, and strategic merchant mix strategy provide a solid foundation for future growth. 

As JSW Energy continues its journey towards a greener future, what are your thoughts on its prospects and potential impact on the renewable energy landscape? Share your insights.

Written by Nalin Suriya S

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