JSW Energy Rides High on Capacity Expansion and Government’s Renewables Push—Is the Share Price Set for a Surge?

JSW Energy Ltd is growing rapidly, thanks to its strong execution abilities and the Indian government’s push for more renewable energy (RE). Currently, RE makes up about 13% of JSW Energy’s total power production, and the company sees great opportunities in this area. However, it must carefully assess the profitability of its projects because any decrease could hurt its cash flow, especially with the constant changes in commodity prices.

Focus Areas

The company is focusing on three main areas: renewable energy generation, energy storage, and energy products. In renewable energy, JSW Energy is currently building projects that will generate 1.9 gigawatts (GW) of power, and it has received approval for an additional 6.6 GW. Recently, the company received approval for another 200 megawatts (MW) of wind-solar hybrid power from Mahadiscom, adding to its growing list of projects. With these developments, the company’s total installed capacity is expected to increase from 7.5 GW today to 10 GW by the end of FY25 and reach 20 GW by FY30.

Strengthening Energy Storage Capabilities

JSW Energy’s energy storage projects are designed to store power generated from renewables, ensuring reliable, round-the-clock energy supply. The company is working on 4.2 gigawatt-hours (GWh) of storage projects, with about 60% of these already tied up with government agencies.

Expanding into Solar Modules and Green Hydrogen

In terms of energy products, JSW Energy is involved in manufacturing solar modules and producing green hydrogen. The company received approval to set up a 1 GW solar wafer, cell, and module manufacturing unit, with ₹320 crore in incentives under the government’s production-linked incentive (PLI) scheme. Additionally, JSW Energy has been approved to produce 6,500 tonnes per year of green hydrogen under another government initiative. A smaller 3,800 tonnes per year green hydrogen pilot plant for group captive use is expected to be operational by March 2025.

Doubling Down on Capital Expenditure

JSW Energy plans to significantly increase its capital expenditure (capex) in FY25, with a budget of around ₹15,000 crore, nearly double the ₹8,000 crore spent in FY24. In April, the company raised ₹5,000 crore through a qualified institutional placement (QIP), which helped reduce its net debt-to-equity ratio from 1.3 at the end of March to 0.9 at the end of June. However, rising project costs and weaker earnings from existing projects could put pressure on the company’s finances.

Strong Financial Performance Despite Challenges

In the June quarter, JSW Energy’s earnings before interest, taxes, depreciation, and amortization (Ebitda) grew by 16%, thanks to higher power generation and lower fuel costs. For the entire FY24, Ebitda grew by an impressive 64%. The company commissioned one unit of its thermal plant in the first quarter and expects to commission the second unit in the second quarter.

Investor Sentiment and Stock Valuation

Investors have already factored in much of the positive news, as reflected in the stock’s 112% rise over the past year. The stock is trading at a high valuation, with an enterprise value-to-Ebitda (EV/Ebitda) multiple of 16.2x and a price-to-book multiple of 4.2x, according to Bloomberg estimates for FY26. However, the quick completion of projects in FY25 and additional projects with government incentives could justify this valuation.