Rising Debt And Geopolitical Risks Will Challenge Indian Renewables

Key Takeaways

• Growing debt reliance and rising financing costs threaten profitability and could restrict future earnings growth amid aggressive expansion plans.
  
• Technological disruption and policy uncertainty risk undermining projected returns from new renewable energy assets and long-term contracts.
  
• Strategic investments in renewables, disciplined financial management, and supply chain de-risking position the company for sustained, stable growth and improved profitability.

Catalysts

Generates and sells power in India.

• Sustained global and domestic interest rate hikes are increasing the cost of project financing for both ongoing and planned expansions, which could erode return on invested capital and lead to persistent net margin compression, especially as the company maintains high leverage due to aggressive CapEx.
  
• Accelerating technological disruption, such as advances in battery storage and distributed energy resources, threatens to make traditional grid-connected generation less competitive, potentially leading to stranded assets and undermining long-term revenue for the company's large upcoming capacity additions.
  
• Over-dependence on debt-funded expansion, with net debt rising to ₹59,300 crores and a trajectory toward even higher levels amid a planned ₹15,000–₹18,000 crore annual CapEx, significantly raises financial risk and may eventually constrain future earnings growth if operating cash flows do not keep pace.
  
• Increasing supply chain and geopolitical risks, including potential trade barriers and component shortages (for example, batteries, turbines, or solar modules), could cause delays in executing the 13 GW under-construction portfolio and inflate input costs, reducing project IRRs and delaying revenue realization from new assets.
  
• Intensifying competition and risk of policy reversals in the Indian renewable energy market may lead to lower tariffs, squeezing profit margins, disrupting cash flow certainty on Power Purchase Agreements, and negating the company's strategy of relying on long-term contracted revenue streams for stable EBITDA.

JSW Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on JSW Energy compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming JSW Energy's revenue will grow by 24.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 15.5% today to 13.3% in 3 years time.
• The bearish analysts expect earnings to reach ₹35.8 billion (and earnings per share of ₹21.52) by about August 2028, up from ₹21.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 31.5x on those 2028 earnings, down from 42.5x today. This future PE is greater than the current PE for the IN Renewable Energy industry at 27.5x.
• Analysts expect the number of shares outstanding to grow by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.84%, as per the Simply Wall St company report.

JSW Energy Future Earnings Per Share Growth

Risks

• The company is aggressively expanding its renewable capacity and energy storage portfolio, with 13 gigawatts of new projects under construction, all fully tied up under long-term power purchase agreements, ensuring long-term revenue visibility and limiting exposure to merchant market volatility.
  
• Recent acquisitions (such as O2 Power and the Mahanadi plant) have already started contributing meaningfully to earnings, and further integration and efficiency improvements are expected to bolster EBITDA and support sustainable earnings growth.
  
• Robust capital allocation discipline and active deleveraging have supported a healthy balance sheet, with net debt-to-EBITDA ratios within targeted levels, improving net margin resilience and lowering interest costs, which can lift net income over time.
  
• The transition toward more domestic coal sourcing, ongoing investments in wind blade and battery assembly plants, and overall supply chain de-risking are set to improve project execution efficiency and lower input costs, thereby enhancing profitability and operating margins.
  
• Structural trends supporting India's long-term power demand (such as rapid urbanization and industrialization) and favorable policy support for capacity addition in both renewables and firm thermal sources are likely to drive sustained topline growth, leading to stable and rising earnings per share.

Valuation

• The assumed bearish price target for JSW Energy is ₹423.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of JSW Energy's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹885.0, and the most bearish reporting a price target of just ₹423.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹268.7 billion, earnings will come to ₹35.8 billion, and it would be trading on a PE ratio of 31.5x, assuming you use a discount rate of 14.8%.
• Given the current share price of ₹528.9, the bearish analyst price target of ₹423.0 is 25.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.