Lower power offtake by state distribution companies and depreciation of the rupee led to a 36% year-on-year fall in profit for JSW Energy in the September quarter.
The company on Monday reported a net profit of Rs 162 crore for the quarter. A healthy monsoon resulted in weak demand for power during the quarter. As a result, JSW Energy's plant load factor (PLF), or capacity utilisation , for the quarter dropped to 69.3% from 82% in the year-ago period.
In addition, the depreciation in rupee led to high fuel costs for the company. However, correction in international coal prices partially offset the foreign exchange loss. Overall, the company reported an exceptional loss of Rs 168 crore in the quarter to September because of depreciation in the rupee.
A positive for the investors is that the foreign exchange losses are unlikely to continue in future. During the quarter, the company completely hedged its foreign exchange exposure. While this may lead to higher operating costs, it would reduce earnings volatility in the coming quarters. Over the past few quarters, the company has been shifting its revenue mix towards long-term contracts.
As of September, the company sold 60% of its output through long-term contracts compared with 48% in the previous year.
The company intends to sell up to 80% of its power through long-term power purchase agreements . This augurs well for the company as merchant or shortterm power tariffs have been under pressure due to lower off take. State distribution companies, or discoms, have become disciplined in buying power post their restructuring.
In addition, the integration of southern grid may reduce merchant rates in south India, the company's key supply region. At present, the company has three operational power plants with a combined capacity of 3,140 MW.
In addition, it has started tendering construction for its 240 MW hydropower project. A healthy debt-to-equity ratio of 1.4 gives the company opportunity to expand its capacity through organic route or acquire distressed projects in the near future. Another development to watch out for in the coming quarters is the final tariff for its Rajasthan power plant. At present, the company sells its power at Rs 3.74 per unit.
A higher price may increase investor sentiment in the stock. At the current price, the stock has been trading at a price-to-book value of 1.2, which is lower than the three-year historic average of 1.7. International coal prices and merchant tariff rates would be the key factors to watch out for the stock movement in the near term.
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