October 1, 2010

www.fullertonsecurities.co.in Page | 1

JSW ENERGY LTD BUY

JSW Energy Limited (JSWEL), a JSW Group Company has 995MW of operational

generating capacity and expects to commission additional 2,145MW of generating

capacity over the next two years.

• The company is in an expansion mode and is expecting to enhance its capacity to nearly

11,500MW by 2015-16. In the near term, the management targets capacity addition to

the tune of 1275MW in FY11, taking total operating capacity to 2270MW by FY2011

which would be mainly from Raj West Power Ltd (Unit 1) and JSW Energy Ratnagiri Ltd

(Unit 1).

• The efficiency is high at the company’s power plants. The Plant Load Factor (PLF) for

existing units at Vijaynagar is at above 90% levels, while it is expected to be about 90%

for JSWERL and 80% for RWPL. Overall, out of total generation, 40% will be allocated for

PPA and rest for Short term agreements.

• The cost of fuel contributes to nearly 45-55% of total revenues. JSWEL has a total coal

requirement of 6mt & 10.7mt in FY11E & FY12E respectively. The company’s tie-up with

Indonesian & South African coal mines & captive Lignite blocks at Rajasthan among

others will ensure fuel security for the company.

• We expect JSWEL’s revenues to grow at a CAGR of 58% from 23,551mn in FY-10 to Rs

59,090mn in FY2012. We further estimate that PAT would grow at a CAGR of 46% from

7,455mn in FY-10-12 to Rs 15,858mn in FY-12.

Based on a consolidated FY12 P/E multiple of 15, the fair value for the company works

out to Rs 145.

Recommendations <= 1 year 1 - 2 yrs 2 - 5 yrs

Strong Buy

Buy

Hold

Reduce

SellStrong Buy – Expected Returns > 20% p.a.

Buy – Expected Returns from 10 to 20% p.a.

Hold – Expected Returns from 0 % to 10% p.a.

Reduce – Expected Returns from 0 % to 10% p.a. with possible downside risk

Sell – Returns < 0 %

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Sensex JSW Energy

STOCK DATA

BSE / NSE CodeBloomberg Code No. of Shares (Mn)Sensex / Nifty PRICE DATACMP Rs (29th Sept' 10)BetaMarket Cap (Rs mn)52 Week High-low Average Daily VolumeSTOCK RETURN (%)

30D 3M 6M 1YJSW Energy -7% -4% 5% NASensex 11% 14% 13% 18%Nifty 11% 14% 13% 20%SHARE HOLDING PATTERN (%)

PromoterInstitutionNon InstitutionTotal9 Month Price Performance (Rel. to Sensex)

533148 / JSWENERGY- EQJSW IN EQUITY

164019,956/5,991

118.3

1211

100.0

0.89194,018

136.6/ 99.91,445,646

77

Financial SnapshotProjections (Rs Mn) FY08A FY09A FY10A FY11E FY12E

Revenue 12,931 18,350 23,551 32,461 59,090

Y-o-Y Growth % 41.9% 28.3% 37.8% 82.0%

EBIDTA 9,094 5,490 12,877 18,342 30,617

Y-o-Y Growth % -39.6% 134.5% 42.4% 66.9%

PAT 6,253 2,767 7,455 7,674 15,858

Y-o-Y Growth % -55.8% 169.4% 2.9% 106.6%

EPS Rs 12.2 5.1 5.2 4.7 9.7

BVPS Rs 19.5 27.1 29.1 33.1 41.4

EBIDTA % 67.8% 29.0% 51.5% 54.3% 49.6%

NPM % 48.4% 15.1% 31.7% 23.6% 26.8%

ROE % 62.3% 18.7% 15.6% 14.1% 23.3%

PER x 25.3 12.2

P/B Ratio 3.6 2.9

October 1, 2010

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JSW Energy straddles over large spectrum of Power business such as Mining, Equipment Manufacturing, Power Generation,

Power Transmission and Power Trading. JSWEL, with 260MW Vijaynagar-I, 600MW Vijaynagar-II and 135MW Raj West units has

current operating capacity of 995MW. The company sells power through Long term and Short term power purchase agreement

to state power units, power trading companies and industrial customers. The value chain of company is given below:

• Mining: Majority of the power projects undertaken are thermal i.e. coal based generation. The Company largely depends on

imported coal (40-50%) for generation. The company has tied up with various coal suppliers such as Coal India Limited, Barmer

Lignite Mining Company Limited, Utkal-A (Orissa), Ichhapur Coal Mine (W Bengal), long term coal contracts from Indonesia and

Mozambique and JSW Energy Natural Resources South Africa etc, which would ensure fuel security.

• Transmission: Jaigad Power Transco Ltd (JPTL) is a 74:26 JV between JSWEL and MSETCL. JPTL has entered into an

agreement with JSWERL for the development of transmission systems and networks for supplying its power to the state

transmission system.

• Trading: JSWPTC is trading power since FY06 with an “I” category license. It is a 100% subsidiary of JSWEL. It trades power

which is generated by JSWEL and its subsidiaries only.

• Equipment Manufacturing: JSWEL has entered into a JV with JSWSL and Toshiba Corporation, Toshiba JSW Turbine and

Generator Pvt Ltd (Toshiba JSW), for the design, engineering, manufacture, assembly and sale of sub-critical and super-critical

steam turbines and generators ranging in capacity from 500MW to 1,000MW. JSWEL holds 20% stake, JSWSL holds 5% stake and

Toshiba Corporation holds 75% stake.

This forward and backward integration provides synergies to the power generation business and improves margins.

JSWEL plans to expand its operating capacity to nearly 11500MW by 2016.

BUSINESS PROFILE

Key Risks and Concerns… Revenue will be affected if there is fall in merchant power demand and rates. As the company is more dependent on

imported fuel, there is risk of high fuel cost; exporting countries export policies and mining policies. Fuel security will be

affected by slow progress in mine development at coal mines allocated. Besides, higher than expected AT&C losses will be

negative for the company.

Uncertainty in merchant power rates and imported coal prices a concern

ProjectCapacity (MW)

Land Acquisition

MoEF Clearence

Fuel Supply

EquipmentsFinancial Closure

Projec Cost (Rs Cr)

Capital Invested (Rs

Cr)

Expected date of comissing

RWPL 1 1,080 √ √ √ √ √ 5,000 4,587 FY 11JSWERL 1 1,200 √ √ √ √ √ 4,500 3917 FY 12RWPL 2 270 √ √ × √ √ 1,350 62 FY 12JSWERL 2 3,200 √ × × × × 15,000 - FY 15Chattishgrah 1,320 × × √ × × 6,500 33 FY 15W Bengal 1,600 √ × √ × × 9,680 28 FY 15Kutehr 240 × × √ × × 1,915 80 FY 16Jharkhand 1,620 × × × × × 7,900 - FY 15Total 10,530 51,845 8,707

Projects under implementation

October 1, 2010

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Strong Revenue Growth ahead…. For the quarter ended June 2010 on a consolidated basis Total Income of JSW Energy stood at Rs 9323.9 mn

indicating an impressive 210% increase on a Y-o-Y basis comparison. The Net Profit after Tax after Share of Profit of

Minority for the period under review stood at Rs 2986.4 mn indicating an increase of 219%. The Operating Results

for the Q1FY11 are in respect of 735MW capacity addition. The figures of the corresponding period in the previous

year was only for 260MW & hence not comparable. The fuel cost and other expenditure increase (as a % of Total

Revenue) from 35.6% to 45.9% and from 4.1% to 4.3% respectively.

Revenue increased by 210% Y-o-Y on commissioning of capacities Higher merchant power proportion to maintain higher margins

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FY09A FY10A FY11E FY12E

Revenue (Rs Mn) EBIDTA Margin PAT Margin

Annual Revenues and Margins

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Net Revenue (Rs mn) EBITDA Margins

Quaterly ConsolidatedPerformance

Peer Comparison The Company sells higher proportion of power in the merchant power category (60%), as compared to its peer group

which would provide it an edge as the outlook on merchant power rates remains stable at least for the next 2 years amid

power deficit. Further, the Company is expected to benefit from 2,145MW of capacity expected to be commissioned over

the next 2 years. In addition, the company’s presence across the power value chain with backward integration into coal

mining, power transmission and trading will result into synergies maintaining margins going forward.

Peer Group Comparison

CompaniesRevenue(Rs. mn)

EBIDTA Margin (%)

PAT Margin (%)

ROE %P/E (x)

P/B (x)

CMP (Rs.)

FV (Rs.)

JSW Energy 23,551 52% 31.7% 17.7% 22.9 4.1 118 10.0CESC 42,040 15% 3.7% 5.0% 30.9 1.5 390 10.0

Torrent Power 58,243 32% 14% 21.1% 18.1 3.8 321 10.0

Neyveli Lignite 41,210 46% 30% 12.1% 21.4 2.6 159 10.0* FY10 Consolidated figures

October 1, 2010

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Based on a consolidated FY12 P/E multiple of 15, the fair value for the company works out to Rs 145.

VALUATION

We estimate JSW Energy Ltd’s revenues to grow at a CAGR of 58% over FY2010-12 to Rs 59,090mn by FY2012. We

further estimate that PAT would grow at a CAGR of 46% over FY2010-12 to Rs 15,858mn in FY2012 from Rs 7,455mn

in FY2010.

Based on a consolidated FY12 P/E multiple of 15, the fair value for the company works out to Rs

145.

We recommend a ‘BUY’ rating on the stock.

Financial Analysis and ProjectionsParticulars (Rs Mn) FY08A FY09A FY10A FY11E FY12E

Net Revenue 12,931 18,350 23,551 32,461 59,090

Other Income 329 171 742 717 1,306

Total Income 13,261 18,522 24,293 33,178 60,396

Operating Expenditure 4,167 13,032 11,416 14,836 29,779

Depreciation 586 602 1,361 2,140 4,582

EBIT 8,508 4,888 11,516 16,202 26,035

EBIT Margin (%) 66% 27% 49% 50% 44%

Interest 886 1,209 2,837 6,734 6,470

Profit Before Tax 7,623 3,678 8,679 9,468 19,566

Less: Tax 1,370 912 1,224 1,794 3,708

Profit After Tax 6,253 2,767 7,455 7,674 15,858

PAT Margin (%) 48.4% 15.1% 31.7% 23.6% 26.8%

ROE (%) 62.3% 18.7% 15.6% 14.1% 23.3%

EPS (Rs) 12.2 5.1 5.2 4.7 9.7

BVPS (Rs) 19.5 27.1 29.1 33.1 41.4

Valuation Ratios (x) FY11E FY12E

P/E 25.3 12.2

P/B 3.6 2.9

October 1, 2010

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Board Of DirectorsDirector Name Current Position Description

Sajjan Jindal Chairman & Managing Director

Mr. Sajjan Jindal is Chairman of the Board, Managing Director of JSW Energy Ltd. He holds a bachelor’s degree in mechanical engineering from the Bangalore University. He is also a principal promoter of the Company, vice-chairman and managing director of JSWSL and chairman in other JSW Group Companies and director in other companies. He is currently the president of Assocham, member of Indian Council for Sustainable Development, member of the Advisory Committee of TERI School of Management, member of CII National Council, council member of Indian Institute of Metals and member of the Board of Directors of Indian Institute of Management, Indore. In 2007, Mr. Jindal was named the Ernst & Young ‘Entrepreneur of The Year’ in the manufacturing category. He has been on the Board of Directors of the Company since October 20, 2003. He was designated as the Chairman and Managing Director of the Company on January 1, 2009.

Lalit GuptaChief Executive Officer, Joint Managing Director, Whole Time Director

Mr. Lalit Kumar Gupta is Chief Executive Officer, Joint Managing Director, Whole Time Director of JSW Energy Ltd. He holds a Bachelor’s degree in Commerce (Gold Medalist) from Jiwaji University, Gwalior. He secured ranks in both Intermediate and Final Examination of Institute of Chartered Accountants of India and is a Fellow member of Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. Mr. Gupta who has over 3 decades of experience comes from Mangalore Refinery and Petrochemicals Limited (MRPL) which he joined in December 1999 as Company Secretary and was elevated to the position of Vice President (Finance) and Company Secretary in June 2003 and to the position of Director (Finance) in May 2006. At MRPL, Mr. Gupta is credited with several initiatives, innovative and cost cutting measures including initiation of complete financial re-engineering thereby bringing down finance costs drastically, managing and implementing the Debt restructuring plan within a record period, negotiating sales tax incentives prepayment with Government of Karnataka resulting in complete turnaround within the first year of ONGC’s takeover of MRPL

Nirmal Kumar JainExecutive Vice Chairman of the Board

Mr. Nirmal Kumar Jain has been appointed as Executive Vice Chairman of the Board of JSW Energy Ltd. He holds a Bachelor’s degree in commerce. He is a Fellow member of Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. Mr. Jain, who joined the JSW Group in 1992, held positions of increasing responsibility including as Director - Finance in 1994, Deputy MD & CEO in 1996 and Executive Vice-Chairman of Jindal Iron & Steel Co Ltd. in 2001 till it was merged into and formed as JSW Steel Limited. He was also on the Board of Company as Vice-Chairman from 1999 until he resigned with effect from 23.10.2008. Prior to joining JSW Steel Limited, Mr. Jain was the General Manager (Finance) of Permanent Magnets Limited. Mr. Jain’s contributions to the JSW Group include helping the JSW Group to strengthen its position from being a steel manufacturer to a diversifi ed conglomerate. In his last assignment, he has been driving JSW Group’s energy business. In his tenure with the Group, he was involved in the management of joint ventures with business partners from the globe such as Power Business with Tractebel of Belgium, Oxygen business with Praxair of USA and Steel business with British Steel of UK. Mr. Jain has also contributed to JSW Group in many other areas, including the JSW Group in its new ventures such as Energy, Infrastructure and Aluminum, apart from spearheading various assignments for Steel business.

Sattiraju Seshagiri Rao Whole Time Director

Mr. Sattiraju Seshagiri Rao is Whole Time Director of JSW Energy Ltd. He has resigned as Chief Executive Officer, Joint Managing Director of the Company with effect from May 31, 2010. He holds a Bachelor’s degree in Electrical Engineering and a masters degree in business administration. Mr. Rao has over four decades of experience in establishing Greenfi eld thermal power projects, negotiating and implementing Power Purchase Agreements and fuel supply agreements, power pricing, tariff structures and mechanisms, environment friendly and safe methods in operating and maintenance of power plants. He is a member of the New York Academy of Sciences, Chartered Engineer (India), Senior Member of IEEE (USA), Fellow member of the Institution of Engineers and Licensee as Surveyor and Loss Assessor (IRDA). Prior to joining the Company, Mr. Rao worked with the Power Grid Corporation of India Limited, National Thermal Power Corporation, Mecon India Limited and Aditya Birla Group.

D. L. Balaji RaoNon-Executive Independent Director

Mr. D.J. Balaji Rao is a Non-Executive Independent Director of JSW Energy Ltd. He holds Bachelor’s degree in Mechanical Engineering and holds a Post Graduate Diploma in Industrial Engineering. He has also attended the Advanced Management Program at European Institute of Business Administration at Fontainbleu, France. He has worked with ICICI for 25 years in the field of project evaluations and operations and has served as an Executive Director of ICICI and as the Vice - Chairman and Managing Director of SCICI Limited. He was the first Managing Director of Infrastructure Development Finance Company Limited.

P. AbrahamNon-Executive Independent Director

Mr. P. Abraham, IAS (Retd.) is a Non-Executive Independent Director of JSW Energy Ltd. He holds a Masters degree in Arts and Diploma in System Management and is an Indian Administration officer. He worked in various capacities as the Secretary Municipal Administration, Housing and Urban Development, Government of Andhra Pradesh, Secretary to the Maharashta State Electricity Board, Secretary to the Energy Department of Government of Maharashtra, Chairman and Managing Director, Maharashtra State Textile Corporation, Joint Secretary, Industries Department, Government of Maharashtra, Iron & Steel Controller, Ministry of Steel, Government of India, Managing Director, Investment Corporation of Andhra Pradesh, Commissioner of Industries, Government of Andhra Pradesh, Secretary, Environmental & Energy Department Additional Secretary and Special Secretary, Ministry of Defence, Government of India,Secretary, Ministry of Power, Government of India.

Chandan Bhattacharya

Non-Executive Independent Director

Mr. Chandan Bhattacharya is a Non-Executive Independent Director of JSW Energy Ltd. He holds a Bachelor degree in Arts Honours from Kolkata University and CAIIB. He is the former Managing Director of State Bank of India and has a wide range of experience of over 39 years in Banking, Trade and Commerce. He was a member of Managing Committee of Indian Banking Association,Executive Committee of FICCI, Banking & Finance Committee of ASSOCHAM and head of Inter - Institutional Group on financing of fast track Power Projects. He has also served on the Boards of Directorsof SBI, California, SBI Capital Markets Limited, SBI Funds Management Private Limited, SBI Factors & Commercial Services Private Limited, INMB Bank Limited, Lagos, Nigeria, Discount & Finance House of India Limited, Mumbai and eight other associate banks of SBI. He has served as a Member, Securities Appellate Tribunal in the rank of Secretary to Government of India. Currently, he is a Senior Advisor of the Societe Generale Bank in India.

Tilak Raj BajaliaNon-Executive Independent Director

Mr. Tilak Raj Bajalia is Non-Executive Independent Director, Reprsentative of IDBI Bank Limited of JSW Energy Ltd. He holds a Bachelor’s degree in Arts, CAIIB and member of Institute of Cost and Works Accountants of India. He started his banking career in 1974 with Bank of India and joined IDBI in 1983. He has worked in various departments like human resources department and corporate finance department, has handled Infrastructure projects and recovery and is presently heading SME Vertical. He has also been in-charge of the Jaipur branch office, handling the entire Rajasthan region portfolio and Mumbai branch office covering entire Maharashtra. He was a member of the committee constituted by Reserve Bank of India for restructuring of cases with exposure less than Rs.100 million. He has been associated with CII and FICCI for the development and growth of SMEs.