JSW Energy (JSW) will dole out Rs 9,300 crore (earlier deal value Rs 9,700 crore) to acquire JPVL’s Baspa 300MW and Karcham Wangtoo 1,000MW projects. Subject to securing necessary clearances/approvals for the additional 91MW capacity at Karcham Wangtoo, JSW will have to pay another Rs 300 crore.
However, JSW will receive Rs 280 crore (Edel estimate) towards FY16E earnings. The deal is being funded via 80:20 debt. In addition, the company has entered into a separate MoU with JPVL promoters to pursue due diligence of the 500MW Bina project.
We continue to believe that JSW is ideally positioned to pursue inorganic growth opportunities, improve cash flows and maintain superior return ratios without stretching its balance sheet.
Maintain ‘buy’ with target price of Rs 104. JSW will pay Rs 9,275 crore (Rs 300 crore was paid last year) to acquire the Baspa and Karcham Wangtoo projects from JPVL. The company will absorb Rs 5,700 crore of project debt and borrow additional Rs 1,500 crore of corporate loan, apart from ~Rs 1,800 crore internal accruals to fund the project. While Baspa is a regulated project, Karcham Wangtoo has 70% PPA wherein final tariff is being determined by CERC.
Based on original project equity of Rs 2,600 crore, we estimate the deal was concluded at 1.8x P/BV. Considering combined profitability of Rs 550-600 crore (RoE: 20-22%), the premium is justified The company has also entered into a MoU with JPVL to pursue acquisition of the 500MW Bina project. This operational coal-based project, set up at a cost of ~Rs 3200 crore, has 70% PPA and fuel linkage with Coal India.
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