Analysts say ‘sell’ JSW Energy post Q1 results, stock tumbles 7%

According to Citi, JSW Energy reported a weak quarterly performance in Q1, and added that the stock valuations are expensive.

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Shares of JSW Energy tumbled over 7 percent on July 17 as many analysts reiterated their ‘sell’ call on the energy company’s stock after it reported its Q1 numbers on July 14.

According to Citi, JSW Energy reported a weak quarterly performance in Q1, and added that the stock valuations are expensive.

The company posted a 46 percent year-on-year (YoY) decline in consolidated net profit to Rs 290.35 crore for the quarter ended June. This was primarily due to due to the one-time impact of non-operational expenses of the recent Mytrah buyout and Ind-Barath 700 MW thermal NCLT deal.

Total revenue fell 3 percent on year to Rs 3,013 crore as incremental revenue from Mytrah and renewable energy capacity additions was offset by lower realisation in thermal on account of decline in coal prices. Whereas EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) came in at Rs 1,307 crore in Q1, up 18 percent YoY, due to contribution from renewable energy assets.

Citi said JSW Energy continues to execute well with the balance sheet remaining healthy, yet valuation at 12 times forward EV (Enterprise Value)/EBITDA is expensive, according to the foreign brokerage firm. Citi has a ‘sell’ recommendation on the stock with a target price of Rs 222.

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Besides, what also made investors uneasy was the increase in debt, albeit marginally. JSW Energy’s net debt as of June 2023 stood at Rs 22,900 crore, marginally higher than Rs 22,200 crore as of March 2023, with net debt/equity at 1.2 times.

The net debt/equity ratio compares a company’s total liabilities to its shareholder equity and can be used to carry out how much leverage a company is using. A higher D/E ratio suggests more risk, while a particularly low one may indicate that a business is not taking advantage of debt financing to expand.

Even Kotak Institutional Equities has maintained its ‘sell’ rating with a hike in target price to Rs 195 from Rs 160, on account of the roll forward to FY25 estimates and due to the higher value assigned to the renewable business.

On the contrary, Antique Stock Broking highlighted that the strategy for future is clear with backward integration to lower input costs, locked-in sites for lower capex, and the first-mover advantage in energy storage. With this, the domestic brokerage firm says ‘buy’ JSW Energy’s stock with a target price of Rs 349.

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