JSW Energy A Play On India's Future Of Energy, Morgan Stanley Says

(The Corner Office Journal) -- Morgan Stanley said JSW Energy Ltd. is one of the best Indian utilities to play the Future of Energy (energy transition + energy security) theme, as it grows its green renewable energy business, invests in storage assets and expands thermal business inorganically.

The brokerage initiated coverage on the Indian power producer with an Overweight call and a base case target price of 545 rupees per share.

The stock closed at 468.55 rupees in Mumbai trading on the National Stock Exchange yesterday.

Future of Energy Play

“JSW Energy – A play on India's Future of Energy,” Morgan Stanley said in an investor note.

The brokerage said JSW Energy owns and operates a diverse portfolio of assets spanning across power generation (thermal, hydro, solar and wind) and delivering high operational efficiency.

The company is also investing in emerging businesses like energy storage (battery and pumped) and green hydrogen manufacturing plus its derivatives (working on a captive pilot project), Morgan Stanley said.

Further, it is exploring investments in equipment manufacturing (solar modules and wind turbines), it added.

Strong Track Record

Morgan Stanley said JSW Energy has among the smartest and most experienced management teams in the Indian utility space, with a strong execution track record on growth and a reasonable balance sheet.

The company has been a prudent allocator of capital (both organic and inorganic opportunities) and has completed projects on time without cost overruns, it added.

The brokerage said JSW Energy has steady cash flows from its operational portfolio (low volatility and low receivables: 60 days versus peers: around 80 days), and combined with the recent equity raise (April 2024: 50 billion rupees), has adequate equity to fund growth capital for its under-construction asset pipeline.

“JSW Energy has set an operational capacity target of 20GW by FY30, but we think it will achieve this by FY28,” Morgan Stanley said.

The company will continue to benefit from its strong parentage and large group captive clean energy demand, it noted.

Projections

Morgan Stanley projected JSW Energy’s EBITDA to expand at a 24% CAGR over FY24-FY28 – the fastest amongst its coverage – driven by the commissioning of its under-construction pipeline (renewable energy: around 11GW inkling O2 acquisition + thermal: 350MW + hydro: 240MW).

The brokerage said the company will likely need about 175 billion rupees over FY25-FY28 to commission its under-construction pipeline, which can be funded by internal accruals.

Morgan Stanley said the company’s net debt/EBITDA is likely to increase to around 7x in FY27 and reduce subsequently.

“Balance sheet leverage will increase during the execution phase but remain at a reasonable level versus renewable focused peers,” it noted.

The brokerage has a target price of 1,008 rupees on JSW Energy, based on its bull case scenario assumptions.

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