Top Stock Pick For 2025: JSW Energy Is A 'Buy' For Motilal Oswal; Execution, PPA Visibility Higher Than Peers

Motilal Oswal Report

While the 2024 year-to-date witnessed a broad-based rally, with the five power utility stocks in our coverage up 7-52%, we believe that in 2025, the valuation premium commanded by Renewable Energy (RE) generation players will be a function of:

1. the ability to sustain returns by up-trading into niche business models, e.g. Firm and Dispatchable Renewable Energy, and

2. the ability to maintain high earnings/cash flow visibility, given the ongoing delays in PPA signings that have recently plagued the sector. 

On both these parameters, we highlight JSW Energy Ltd. as our preferred pick in the power utility space. The company is set to raise its installed capacity to 20 GW (ex-KSK Mahanadi acquisition) by FY28-end (Q2 FY25-end: 7.7GW). JSW Energy's strong experience of operating wind assets (2.1GW operational versus 0.1/1.6GW for NTPC Green/Adani Green) is key to up-trading into FDRE bids, where tender announcements have been strong at ~9GW in 2024 YTD (2023: 11GW).

With returns from plain vanilla solar/wind projects becoming commoditized, we believe FDRE tenders are critical for sustaining mid-to-high teen equity returns.

Moreover, despite recent concerns over delays in PPA tie-ups, JSW Energy has secured Power Purchase Agreements for 66% (7.7GW) of its RE pipeline versus 34%/37% GW for NTPC Green/ Acme Solar, respectively.

Our SOTP-based target of Rs 816 for JSW Energy values the renewable business at 15 times FY27 Ebitda, the thermal business at 10 times FY27 Ebitda, and the hydro business at three times FY27 book value. We also highlight Rs 60 in option value relating to the KSK Mahanadi acquisition and Rs 57 relating to O2 Power acquisition.

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