JSW Energy will go in for inorganic growth, aims increase in long term power contracts

Investment valued over Rs 500 cr stuck as expansion put on hold

JSW Energy is looking to better its performance by increasing the number of long term power purchase contracts and increasing operational efficiency of its plants.

The company is looking at non organic route for growth but has put on hold its own planned power projects of 7,000 MW capacity in West Bengal, Chhatisgarh, Rajasthan and expansion of its Ratnagiri plant in Maharashtra. Totally this includes an investment of about Rs 500 crore and is stuck due to delays in fuel linkages and clearances. The amount is being treated as capital work in progress in company's balance sheet.

JSW Energy is said to be in talks with Lanco to acquire its 1200 MW power plant at Udipi in Karnataka. However, CEO Sanjay Sagar refused to confirm or deny if the company is interested in the Lanco's asset but said the company is evaluating several projects.

The company's fourth quarter and full year operating and financial results was impacted due to non availability of lignite (fuel) which led to near two month shut down of its Barmer plant in Rajasthan. The company has a permission to mine 3.75 million tonnes liginite per annum but proposal to increase it to upto 4.5 million tonnes was not approved by the Election Commission of India. JSW has sought permission to increase the capacity to 7 million tonnes in March 2012. The Barmer plant ideally requires 6-7 million tonnes of lignite in order to achieve desired 75% plant load factor. The company is yet to receive approval from the environment ministry for the increased mining capacity.

"We are taking measures to mitigate risks and also looking at more long term power purchase agreements. The demand for merchant power contracts (which are short term but with higher per unit rate) is not lucrative enough in West and North India. We do not see it picking up and the demand is subdued,'' Sagar said. Currently the share of long term and merchant power contracts is about 50:50 and JSW is looking to increase the share of long term contracts to 70 percent of its overall business.

Chief financial officer Pramod Menon said the company has hedged $219 million dollars of short term debt to cover against currency fluctuations and had paid to off nearly $90 million debt this year. Rupee depreciation resulted in a foreign exchange loss of over Rs 300 crore for the company in the first two quarters of the fiscal.

"While the current financial results have not been encouraging the company may see a turnaround if JSW Energy is able to conclude on the acquisition opportunities which are strategically aligned to its long term plans. It is an ideal time to consolidate in the power sector as some of the operational assets are available at lucrative valuation,'' said Sandeep Upadhyay, head infrastructure solutions group, Centrum Capital.

JSW Energy Q4 net drops 48% to Rs 175 cr

JSW's net profit fell to Rs 174.62 crore in Q4 from Rs 335.69 crore in the same period of FY 2014 owing to increased interest expense and lower revenue. The company's power plant in Barmer was shut for nearly two months this quarter due to non availability of lignite which is a source of fuel. Revenue dropped by 10% to Rs 2,058 crore and its plant load factor to 62 percent in the quarter. For full year too the company's net profit fell to 755 crore as against Rs 904 crore in FY2013 but its EBIDTA showed an improvement due to improved realisations.