Can JSW Energy’s green energy dream soar higher with a return of 554%?

Let’s talk about one of the biggest challenges we face today: climate change. Countries around the world are finally taking action on this issue.

Let’s take India as an example. The country has a mission to achieve net-zero emissions by 2070, and by 2030 the country aims to generate about half of its cumulative electricity installed capacity from non-fossil fuel-based energy sources.

Now let’s talk about JSW Energy. The company fully recognizes the urgency of climate action and is committed to influencing the transition to a more sustainable world by achieving its 2030 sustainability goals. The goal is to reduce carbon footprint by more than 50% by 2030 and achieve carbon neutrality by 2050.

The company’s stock has delivered a multibagger return of 554% over the past three years, significantly increasing shareholder wealth. The stock price has soared more than 140% over the past year.

The company’s share price also hit a 52-week high on April 2, 2024, following the board’s decision to raise ₹5,000 crore through Qualified Institutional Placement (QIP). So, let’s dig deeper into the company to see if there is an investment opportunity in it.

JSW Energy Industry Overview

India is one of the world’s largest electricity producers and consumers, with a total installed capacity exceeding 416 GW by the end of fiscal 2023.

Factors such as population growth, urbanization, industrialization, and improving living standards are increasing the demand for electricity and thus increasing access to electricity.

India is also a major producer of renewable energy with renewable energy sources comprising 41% of the total installed capacity.

As of 2023, India will have 172 GW of renewable energy capacity, including hydropower, accounting for 22.5% of India’s total energy production.

JSW Energy Company Overview

JSW Energy, one of India’s largest independent power producers, is the energy arm of JSW Group, India’s leading conglomerate. Over 20 years ago, the organization started with a single power plant in Karnataka and has since expanded to 10 states across India.

Energy production capacity is a mix of thermal, hydro, wind and solar power, with a total capacity of 9.8 GW, of which 6.6 GW is installed and 3.2 GW is under construction and is scheduled to be operational by 2024.

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

During FY 2023, JSW Energy completed the acquisition of 1,753 MW of renewable assets from Mytrah Energy (India) Private Limited (MEIPL). This includes 1,331 MW of wind capacity and 422 MW of solar capacity, operating primarily in the South, West and Southern regions. Central India.

In addition to solar and wind energy projects, JSW Energy also focuses on ensuring stable and reliable power supply. They are doing this by investing in energy storage solutions such as hydraulic pump storage and battery energy storage systems.

We are also venturing into the ‘electron to molecule’ space by securing India’s largest green hydrogen capacity. The move aims to support green steel production.

JSW Energy’s business divisions

JSW Energy has three main business segments: generation, transmission and power trading. Thermal power generation’s revenue contribution was the highest at 83%, followed by renewable energy at 14%.

Development

The company’s main focus is generating electricity through thermal and renewable energy sources. The current installed capacity is 6.6 gigawatts (GW), with an additional 3.2 GW under construction, bringing the overall portfolio to 9.8 GW. Of these, renewable energy accounts for 61% and thermal energy accounts for 39%.

power transmission

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

power trading

Almost 20 years ago, JSW Energy introduced JSW Power Trading Company Limited (JSWPTC) as a step toward realizing its goal of becoming an integrated power company. Over time, JSWPTC has emerged as a prominent player in the Indian power trading sector.

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

Finance of JSW Energy

In FY 2023, JSW Energy recorded an increase in revenue reaching Rs 10,332 billion, a surge of 26.5% compared to Rs 8,167 billion in FY 2022. Analyzed over a four-year period from FY2020 to FY2023, the company has recorded a compound annual growth rate (CAGR) of 8%.

On the other hand, net profit declined noticeably, down 15% from ₹1,743 crore in fiscal 2022 to ₹1,480 crore in fiscal 2023. Cumulative net profit recorded a CAGR of 11% over the four years from fiscal 2020 to fiscal 2023.

In FY23, JSW Energy maintained favorable financial metrics with return on equity (ROE) of 7.93% and return on invested capital (ROCE) of 6.66%.

JSW Energy’s future plans

capacity expansion

JSW Energy has delivered on its commitment to increase installed capacity to 10 GW by FY25 in due course. Capacity additions were led by the RE sector, which amounted to approximately 1987 MW in the last 12 months.

The renewable energy (RE) portfolio is divided into various sectors, with wind accounting for 61% of RE capacity, hydropower making up 27%, and solar 11% of RE capacity.

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

Column seller mix and strong PPA profile

JSW Energy plans to build the Indivaras thermal power plant with a capacity of 700 MW in Utkal, Odisha, along India’s coal belt. According to management, the plant will cater solely to merchant demand for about two years.

This will give you better speed for the generated output. As the base load capacity is lowered, the amount of energy exchange is increasing with increasing demand. This is an advantage the company is looking to capitalize on.

The company has maintained a strong power purchase agreement (PPA) profile, with approximately 86% of its total generation capacity tied up in long-term contracts. This provides stable growth lock-in and long-term revenue visibility as the contract period is typically around 25-30 years.

conclusion

With a focus on renewable energy and strong expansion plans, 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 the outlook and potential impact on the renewable energy landscape? Share your insights.

A work written by Nalin Surya S.

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