Why JSW Energy Is Upbeat About India’s Power Sector

Even as energy shortage grips the world, India’s power sector is emerging from a decade of stress because of the push to renewables, according to Prashant Jain of JSW Energy Ltd.

The energy crunch in Europe and China and the crude oil price rise won’t have a dramatic impact on the Indian landscape, joint managing director and chief executive officer at the power generation company said in an interview with BloombergQuint’s Niraj Shah.

While prices of imported and domestic coal may rise given the surge in demand in India and abroad, that will be passed through, Jain said.

A resurgence in demand for power globally has caused a supply shortage in Europe. China also has capped mining of coal and imports of the fossil fuel to curb pollution, roiling commodity markets.

In India, the power sector is coming out of a deep slumber, which may aid businesses in this space, Jain said. Supply is becoming widely available and at good rates, courtesy renewable energy, he said.

Smart meters have also helped reduce aggregate technical and commercial losses for the power distributors, according to Jain.

The proposed changes to the Electricity Act can end the state monopoly, give consumers the option to choose suppliers and reward consumers of solar energy, Jain said.

The nation, however, is facing a coal crunch. Stockpiles at power plants, contributing bulk of India’s electricity, are at their lowest since November 2017. The government has decided to ration supplies.

India has underinvested in the power sector from 2012-20, and sometime in the next few quarters, the country will face a demand-supply mismatch if the economic growth comes back as expected, according to Jain.

The capacity required would be three times the anticipated demand and bulk of fresh capital expenditure will be in renewables, according to him. Lack of financing from banks for thermal projects as well as ESG concerns would ensure that fresh capacity addition comes from green energy, he said.

That will aid growth for renewable power companies.

Valuations

Green energy companies listed globally trade between 15 and 20x their enterprise value-to-operating income ratio and these are the new benchmark valuations, said Jain. By comparison, Indian power companies, including JSW Energy, trade cheap, he said.

JSW Energy, he said, has the highest equity internal rate of return (a measure of return to shareholders), the lowest gross block per megawatt (showing that capacity addition at lower costs) and the lowest debt-to-equity among peers.

The company trades at 12 times the estimated enterprise value-to-Ebitda multiple for FY23. That’s higher than domestic peers but lower than global peers.

JSW Energy has already surpassed target price estimates.

Capacity Expansion Plan

JSW Energy targets increasing its capacity from the existing 4.5 gigawatts to 10 GW by FY25 and 20 GW by FY30. And is confident of reaching 2.5 GW of renewable capacity in the next 18 months.

Jain said the company can expand capacity almost immediately. That’s because it has a lower leverage than peers and can grow inorganically.

If India’s power demand grows at 5-6% every year, then the country will require additional 10GW annually. In light of such high demand, JSW Energy’s capex plans aren’t exaggerated, he said.

Power is now an annuity cash-flow business and as long as companies are prudent, the chances of large losses and defunct power plants are minimal, according to Jain.

Green Hydrogen

India is looking to boost green hydrogen, produced from water using renewable power. The cost of green hydrogen will soon be on a par with that of grey hydrogen (generated from natural gas), Jain said, adding that JSW Energy’s tie-up with Australia’s Fortescue Future Industries gives them a strong headstart.

And he said some of the largest investors have shown interest in the company’s green hydrogen plans.

The company’s board has also given an in-principle approval to reorganised green (hydrogen) and grey (thermal) power businesses to unlock value.

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Neal Bhai has been involved in the Bullion and Metals markets since 1998 – he has experience in many areas of the market from researching to trading and has worked in Delhi, India. Mobile No. - 9899900589 and 9582247600

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