JSW Energy Can Rally 60% Says Motilal Oswal, Reiterates 'Buy' On The Stock — Here's Why

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Motilal Oswal Report

We conducted a deep-dive analysis of KSK Mahanadi Power Company Ltd., a thermal (operational: 1.8GW + 1.8GW expansion) plant that JSW Energy Ltd. is considering for acquisition. Our key conclusions:

1. we estimate an net present value/share of Rs 27 for JSW Energy’s share of 74% (with a brownfield expansion option);

2. without a brownfield expansion, we estimate the NPV at Rs 16/share;

3. for every Rs 0.2/unit change in Ebitda/unit (~8%), NPV is impacted by 33% (this is key as over time JSW Energy may look to capture synergies and raise Ebitda/unit);

4. for every 5% change in plant load factor, NPV is impacted by 31% (base case PLF: 70%); and

5. while investors are concerned about leverage, we believe the ND/Ebitda ratio for FY26 will rise only marginally to 5.6x (current estimate: 5.1x) and could decline slightly in FY27.

Key risks to our estimate:

1. we assume an additional 1.8GW capacity to commence operations by FY29 with an estimated capex of Rs 189 billion; potential cost overruns/delays will impact NPV,

2. Power Purchase Agreement with TANGEDCO is set to expire in FY29; we assume renewal at Rs 5.4/kwh with another off-taker, and'

3. the plant has some contingent liabilities amounting to Rs 4.02 billion; we need clarity from the management on whether JSW Energy would be liable in the event of an adverse outcome on these.

We reiterate our Buy rating with an SoTP-based target price of Rs 705; KMPCL’s NPV is currently not a part of our SoTP valuation. The cut in our target price is driven by lower valuation multiples for the thermal and hydro businesses.

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