JSW Energy's expected Ebitda growth to be fueled by debt binge
Investors expect JSW Energy's Ebitda to almost double in FY26 to ₹10,500 crore. But that may come with higher debt.
JSW Energy Ltd’s stock gained about 3% to ₹504 on Friday even though its results for the quarter and year-ended March were unimpressive. Reported profit after tax increased 20% year-on-year (y-o-y) to ₹415 crore in Q4FY25, but it was mainly because other income more than doubled to ₹308 crore. Other income included a one-off element of about ₹100 crore related to the write-back of provision for deferred consideration related to Mytrah Energy.
Notably, Q4FY25 Ebitda was up a mere 3% to ₹1,204 crore, while the metric for FY25 was down 3% to ₹5,221 crore. So, what explains the Street’s positive reaction? This can be attributed to expectations of Ebitda almost doubling in FY26 to ₹10,500 crore, based on Bloomberg consensus estimates. While the estimated Ebitda growth seems aggressive, a deep dive into the new power generation capacities coming on stream shows that it is feasible to achieve most of it.
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KSK Mahanadi contributed ₹200 crore to Ebitda in about a month after the completion of the acquisition on 6 March. Thus, KSK, being a thermal power plant, can achieve an annual Ebitda of ₹2,400 crore from its operational capacity of 1,800 MW even though total capacity is 3,600 MW. KSK alone, with numbers from full-year operations, could lead to a nearly 40% jump in the company’s total FY26 total Ebitda over FY25.
Also, JSW Energy’s acquisition of O2Power, a renewable power company, will start reflecting in FY26 financials. About 1.3 GW capacity is operational and is likely to reach 2.3 GW by June-end. Assuming an annual steady state Ebitda of ₹1,500 crore, it should add about ₹1,000 crore to the company’s FY26 Ebitda.
Note that unit 2 of Utkal with 350 MW capacity has been commissioned with effect from 15 January. This would contribute to full-year Ebitda growth as well, though it is hard to quantify the upside as the plant’s power generation is sold on a spot basis and short-term power rates are difficult to predict.
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Notwithstanding the strong Ebitda growth prospects in FY26, from their respective peaks in September, JSW Energy’s shares have fallen nearly 37% and the BSE Power index is down 22%. The underperformance of the stock is due to rich valuations. Now, there are added concerns about execution risks and possible equity dilution that may be required, given the company’s ambitious growth strategy.
ICICI Securities Ltd points out even though most of JSW Energy’s new assets are value accretive, funding these projects would require equity raising at the holding company or special purpose vehicle level. Note that JSW Energy has once again raised its capacity targets from 20 GW by FY30 to 30 GW by FY30. Also, the target for energy storage projects has been kept at 40GWH by FY30. The growth could be achieved from organic and inorganic routes, depending on the available opportunities. The company estimates capital expenditure of ₹1.3 trillion over a five-year period ending FY30 to reach the desired capacity. Capex needs for FY26 are about ₹15,000-18,000 crore.
To be sure, though JSW Energy's operational power generation capacity has increased at a fair clip, it has been achieved through higher leverage. Net debt at FY25-end is ₹44,000 crore. If it does not raise equity, debt is likely to rise in FY26 as capex for the full year is far higher than estimated cash profit (or Ebitda minus interest cost). Even after factoring in the doubling of Ebitda this financial year, the stock is quoting at EV/Ebitda of 11x based on Bloomberg consensus estimate for FY26.
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