JSW Energy’s cash flows are robust, conducive for capex: Prashant Jain

JSW Energy has healthy cash flows and balance sheet position and it will be incurring capex towards both the Kuteher HEP and the 810 MW Seci project in the second half of the current fiscal, Prashant Jain, the company’s joint MD, told FE’s Vikas Srivastava during an interview. He further said after the pandemic-induced demand compression, there are visible green shoots with an improvement in power demand seen in September and October on a year-on-year basis. Edited excerpts:

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How do you explain the Q2 results?

During the September quarter, total consolidated revenue decreased by around 10% on a y-o-y basis, primarily due to lower short-term sales. Since the beginning of Q2FY21, some of the long-term customers of the company have migrated into a job work arrangement for the purchase of power against the earlier two-part tariff arrangement. Under this mechanism, thermal coal required for power generation is supplied by the respective customers and the company, in turn, receives the job work charges from the customers for the supply of power. This arrangement has resulted in both lower operating revenues and a corresponding decline in fuel cost in the quarter, leading to a neutral impact on Ebitda. The Ebitda was impacted by the drop in short-term merchant sales and lower ‘other income’. The short-term sales fell 85% to 110 million units. However, our consolidated Ebitda largely stood resilient to the harsh macro-economic conditions as around 81% of our capacity is tied under a long-term PPA, thereby ensuring fixed charges based on normative availability and generates more than 95% of our total consolidated Ebitda.

The PLF at all plants were down…

Among our major plant locations, Barmer witnessed a stark improvement in the actual plant load factor (PLF) to around 80% in Q2FY21 vis-à-vis 60% in Q2FY20, primarily attributable to higher offtake from long term customers. PLF at our hydel plants was flattish on a y-o-y basis. Overall, PLF at only our Vijayanagar and Ratnagiri plants have seen a dip, attributable to lower merchant sales. However, PLFs under long-term capacity at both these locations were higher as well. The improvement in long-term PLFs has been driven by our competitive standing in the merit order dispatch of power and an overall improving trend in power demand.

How do you see the demand evolving?

After the Covid-19-led demand compression, there are visible green shoots with an improvement in power demand seen in September and October on a y-o-y basis. Going forward, we expect the power demand to further firm up as the economy unlocks and the Covid-19 related impact abates.

Your operating margin was 49% in Q2FY21 against 47% in the year-ago quarter.

Ebitda margin on a y-o-y basis is not strictly comparable due to the impact of the job from this year (which impacted the revenues but had a neutral impact on Ebitda). With the denominator (revenues) declining, the margins look higher. However, even after adjusting for this, a continued thrust in improving operating efficiencies have also aided to higher margins.

Are you looking at merger and acquisition opportunities, since you have put a hold on any thermal power expansion?

We will be looking at growth opportunities going ahead, and renewable sources like wind, solar and hydro are the focus areas. We are currently pursuing two organic opportunities — an 810 MW blended wind project tied up with Seci and a 240 MW hydroelectric project in Kuteher for which we have got regulatory approval and are likely to finalise PPAs too. So, this is a cumulative 1,050 MW projects on which there is firm visibility. Our idea is to become a 10 GW company over the medium term, so we will look at opportunities both organically and inorganically in solar, wind and hydro space.

Going ahead, will you have a relook at GMR Kamalanga project? What is the status on the acquisition of Ind Barath?

With renewable being the thrust area, GMR Kamalanga is not on the radar anymore. However, we continue to pursue the Ind Barath acquisition and are waiting for the NCLT approval.

Has the hold on discretionary spend being relaxed? What is your capex for FY21?

We have re-evaluated our cash flow and balance sheet position, which are quite healthy, and will be incurring capex towards both the Kuteher HEP and the 810 MW Seci project in the second half of the current fiscal.