JSW Energy To Focus On Profitability, Not Costly Acquisitions

JSW Energy To Focus On Profitability, Not Costly Acquisitions

JSW Energy Ltd has decided to focus on profitability rather than chase asset acquisition at unrealistic prices, said a top executive. The company, which has got shareholder approval to build a war chest of $3 billion, is eyeing power plants where it can generate power at Rs2.5 to 3 per unit.

“Anything between Rs2.5 to Rs3 per unit is the new normal in power. If you have a Rs8 crore/MW asset, the fixed cost itself is going to be Rs2.5 to Rs3 per unit. So, it’s not going to make sense,” said Prashant Jain, who recently took charge as the company’s joint managing director and chief executive officer.

JSW Energy executives have said on earlier occasions that the firm was targeting a capacity of 10,000 megawatt (MW) by 2020. In the last three years, JSW Energy had completed the acquisitions of two hydropower projects from Jaiprakash Power for Rs9,275 crore. Currently, its capacity stands at 4,531MW.

“We don’t have any vision for capacity addition at this point in time,” said Jain in an interview. “We wouldn’t like to limit ourselves to a particular capacity target, but would rather target a higher return on equity (RoE).”

In fiscal 2016-17, JSW Energy reported a net profit of Rs622.5 crore, down 57.4%, on revenues of Rs8,236.4 crore. The firm’s return on equity stands at 6% compared to 15% in 2015-16.

Given the stress in the sector and still falling power prices, especially in solar generation, the company’s reluctance to ramp up capacity doesn’t come as a surprise, experts said. In 2016-17, capacity utilisation at thermal power plants fell to a 24-year low of 59.88%, according to data compiled by CMIE. At least 18,000MW of coal-based power plants are stranded due to lack of power purchase agreements, fuel supply or last-mile funding due to the poor financial health of their promoter groups.

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“We need to see how sustainable these (power) rates are,” said Somesh Kumar, power and utility sector leader at EY. “Most of the low-priced bids we are seeing today are largely well-configured bids, which most likely won’t be available in the future, thereby putting upward pressure on prices,” he said referring to projects with long-term power purchase agreements, or PPAs, which are easy to finance given visible cash flows.

Indeed, the lower priority for capacity addition can be gauged from the fact that the firm is not pushing the pedal to complete the acquisition of Jaiprakash Power Venture Ltd.’s (JVPL’s) 500MW plant in Bina; the deal has been rejected by the latter’s lenders.

“The transaction is difficult,” Jain said, adding that the lenders were unwilling to hive off an additional asset.

The deal between JSW Energy and JVPL had got stuck after lenders to the latter had invoked strategic debt restructuring (SDR) in the debt-laden company. The SDR scheme allows lenders to pick up a 51% stake in a company by converting a part or all of its debt. While both JSW Energy and JVPL were committed to the deal and its long stop date had been pushed to December 31, the deal appears to be off.

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