JSW Energy Surges Over 56% YTD on Bullish Outlook

JSW Energy Ltd shares rose more than 0.6% on Friday reaching a new 52-week high amid continued investor enthusiasm for the power company’s strong financial performance and positive outlook for the future.

Robust Earnings Growth Fuels Rally

The stock jumped as much as 1.1% to Rs 645.50 during the session bringing its year-to-date gains to an impressive 56%. JSW Energy has now rallied nearly 144% over the past year.

The upbeat sentiment towards the company took another leg higher this week after JSW Energy posted strong results for the March 2024 quarter. While net profit declined 25.5% year-over-year to Rs 231 crore this was largely due to a high base effect from an exceptional gain in the year-ago period.

On an underlying basis the company’s operating performance remained robust. Revenue surged 22% to Rs 2,710 crore as JSW Energy benefited from higher plant availability and realizations. Profitability metrics like EBITDA and margins expanded nicely.

Earnings Momentum to Continue

Analysts expect JSW Energy’s earnings momentum to remain firm over the next couple of years amid rising power demand and improving plant utilization rates. The sell-side consensus calls for annual earnings per share to grow at a double-digit pace through fiscal 2026.

This positive view is reflected in the stock’s premium valuation. JSW Energy currently trades at a trailing price-to-earnings multiple of around 68x well above the sector average of 28x. However, the company’s bright prospects seem to be justifying the lofty multiple for now.

Of the 9 analysts covering the stock a majority 5 have a buy or strong buy recommendation. No analysts currently rate JSW Energy as a hold while 4 have a sell rating citing the expensive valuation.

Electricity Demand Surging

A key catalyst for JSW Energy is the structural increase in power demand across India as the economy expands and electrification picks up pace. This has boosted capacity utilization rates at its plants.

According to government data India’s electricity demand hit a record 229 GW in April rising over 13% from a year earlier. To meet this rising demand electricity supply will need to increase by over 7% annually through the end of this decade.

JSW Energy is well-positioned to capitalize on this demand growth given its leading position, young and efficient plant infrastructure and a robust pipeline of under-construction projects.

New Projects to Drive Growth

The company is investing heavily in augmenting its capacity both through greenfield and acquisition routes. JSW Energy recently began construction on a 1,000 MW greenfield power plant that will become operational in fiscal 2026. Its new 1,320 MW thermal power plant in Chhattisgarh reached full capacity this year.

With numerous growth projects lined up across renewable and conventional energy sources analysts expect JSW Energy’s total operational capacity to increase over 35% to 14 GW by fiscal 2028 from 7.6 GW currently.

To fund this expansion while maintaining a healthy balance sheet the company raised around $900 million earlier this year through an equity rights issue. JSW Energy plans to invest close to $3 billion in capital expenditures over the next four years.

Bullish Technicals and Institutional Participation

From a technical perspective JSW Energy’s stock continues exhibiting strong momentum across all time frames. It has been trading well above its short, medium and long-term moving averages in what analysts call a “golden crossover” signal favoring the bulls.

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Backing this uptrend has been robust institutional investor participation as well. Foreign institutions raised their holding in JSW Energy to 13.34% as of April 2024 from 11.5% in the prior quarter. Domestic mutual funds also hiked their stake albeit at a smaller 0.64% holding.

Upside Potential Remains

Overall with surging power demand aggressive capacity expansion plans and robust profitability providing strong earnings visibility JSW Energy seems poised to extend its impressive run in the coming years.

Analysts at top brokerages like Motilal Oswal have a price target of Rs 810 on the stock implying a further 25% upside from current levels. The mean Street target of Rs 720 suggests about 12% more gains ahead.

While elevated at 6x price-to-book value JSW Energy’s premium valuation seems justifiable given its sector-leading growth outlook. The stock remains a high-conviction buy for investors looking to play the long-term India electrification growth story.

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