Analysts say ‘sell’ JSW Energy post Q1 results, stock tumbles 7%
JSW Energy witnessed a significant decline in its share price, falling over 7 percent on July 17, following the release of its Q1 financial results on July 14. Multiple analysts reiterated their ‘sell’ recommendations on the company’s stock in response to the reported numbers.
Citi, a prominent financial institution, highlighted the weak quarterly performance of JSW Energy in Q1. Additionally, Citi expressed concerns about the expensive valuations of the company’s stock, signaling that it may not be an attractive investment option based on the current market conditions.
The negative sentiment from analysts regarding JSW Energy’s Q1 results and the perceived expensive valuations of its stock played a significant role in the decline of its share price. This highlights the impact of financial performance and market sentiment on investor perception and stock performance in the energy sector.
JSW Energy recorded a substantial year-on-year (YoY) decline of 46 percent in its consolidated net profit for the quarter ended June, amounting to Rs 290.35 crore. The decline in net profit can be attributed primarily to the one-time impact of non-operational expenses related to the recent Mytrah buyout and the Ind-Barath 700 MW thermal NCLT deal.
The acquisition of Mytrah and the thermal NCLT deal resulted in non-operational expenses that had an adverse effect on JSW Energy’s financial performance for the quarter. These one-time expenses impacted the company’s bottom line, leading to a significant decline in net profit compared to the same period last year.
The inclusion of non-operational expenses from these strategic transactions underscores the impact of such events on a company’s financial results. While the short-term impact on net profit is apparent, the long-term benefits and synergies derived from these acquisitions will likely shape JSW Energy’s future growth trajectory.
JSW Energy experienced a 3 percent year-on-year decline in total revenue, amounting to Rs 3,013 crore for the quarter. Although there was incremental revenue generated from the Mytrah acquisition and additions to renewable energy capacity, this growth was offset by lower realizations in the thermal segment due to a decline in coal prices.
However, the company witnessed a positive performance in terms of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). EBITDA for the quarter stood at Rs 1,307 crore, reflecting an 18 percent YoY increase. This growth in EBITDA was primarily driven by the contribution from the company’s renewable energy assets.
Despite the overall decline in total revenue, the positive EBITDA performance highlights the positive impact of JSW Energy’s renewable energy assets on its financial performance. These assets have contributed to the company’s earnings, partially offsetting the challenges faced in the thermal segment due to lower coal prices.
The combination of lower thermal realizations and the positive contribution from renewable energy assets has influenced JSW Energy’s financial performance in the Q1 period. The company’s focus on expanding its renewable energy portfolio has played a crucial role in sustaining growth and mitigating the impact of unfavorable market conditions in the thermal segment.
Citi, the foreign brokerage firm, acknowledged that JSW Energy has been executing its operations well and maintaining a healthy balance sheet. However, Citi expressed concerns about the company’s valuation, which stands at 12 times forward EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization). The brokerage firm considers this valuation to be expensive and, as a result, has a ‘sell’ recommendation on the stock with a target price of Rs 222.
Furthermore, investors grew uneasy due to a slight increase in the company’s debt levels. JSW Energy’s net debt as of June 2023 amounted to Rs 22,900 crore, marginally higher than the figure of Rs 22,200 crore reported in March 2023. The net debt/equity ratio stood at 1.2 times.
The concerns raised by Citi regarding JSW Energy’s valuation and the marginal increase in debt highlight the factors that contributed to investors’ unease. Valuation plays a significant role in determining the attractiveness of an investment, and the increase in debt levels can impact the company’s financial position and risk profile. These aspects should be carefully considered by investors when making investment decisions related to JSW Energy.
The net debt/equity ratio provides insight into a company’s leverage, comparing its total liabilities to shareholder equity. A higher ratio indicates greater risk, while a lower ratio suggests underutilization of debt financing for expansion.
Kotak Institutional Equities, while maintaining its ‘sell’ rating on JSW Energy, has raised the target price from Rs 160 to Rs 195. This adjustment is attributed to the roll forward to FY25 estimates and a higher valuation assigned to the company’s renewable business.
In contrast, Antique Stock Broking has highlighted JSW Energy’s clear future strategy, which includes backward integration to reduce input costs, secured sites to minimize capital expenditure, and a first-mover advantage in energy storage. Based on these factors, the domestic brokerage firm recommends a ‘buy’ rating on JSW Energy’s stock, with a target price of Rs 349.
These divergent opinions from different brokerage firms reflect varying perspectives on JSW Energy’s future prospects. Investors should consider the analyses and target prices provided by these firms along with their own research and risk appetite when making investment decisions related to JSW Energy.
