The sell-off in JSW Energy Ltd continued on Tuesday with the stock closing down 3.5%. Cumulatively, it has lost 12% since the company announced results last week, compared to a flat BSE 500 index. The disappointment on earnings aside, JSW Energy’s diversification into new business areas is making investors wary.

The company has ramped-up the scope of investments in the electric vehicles (EVs) business and has decided to set up a facility to manufacture solar photovoltaic (PV) panels. That’s not all. JSW Energy said it is considering entering the PV cell/wafer manufacturing. Solar cells are integrated to make PV panels. The decision comes even as the company widened its scope of investments in EVs.

In addition to electric cars, it now plans to also manufacture electric commercial vehicles. As a consequence, the capex (capital expenditure) outlay for the EV business has been raised from Rs3,500-4,000 crore to Rs6,500 crore.

When the company first announced its decision to enter the EV business in August last year, it did not spook the markets, though it did come as a surprise. The belief then was that JSW Energy was making a focused bet. But expanding the scope of investments, and that too to new segments, is making analysts uneasy. Further, while the capex is being raised significantly, there is no visibility on benefits yet. Against negligible capex in recent years, the management commentary suggests annual capex of around Rs2,500 crore from the current fiscal year onwards, points out Nomura research.

Also, analysts wonder whether the decision to enter the solar PV panels or cell manufacturing business is prudent, given that imports from China are more cost-competitive. Similarly, JSW Energy is ramping-up capex plans in EVs when major automobile firms in India are adopting a collaborative approach about investments. “We perceive this unrelated diversification in a still evolving market globally as a potential risk," Edelweiss Securities Ltd said in a note.

The investment decisions are raising concerns on two fronts. One is the profitability of new ventures, which is unclear. Second is the impact on the balance sheet. JSW Energy is one of the few private sector firms to have had a healthy balance sheet. Thanks to the cautious approach to acquisitions, debt is coming down. But the latest capex plans can reverse this as the company plans to fund it through debt and internal accruals.

These concerns have risen at a time when JSW Energy is facing raw material cost pressures. Tracking the pressure on realizations and impact on earnings, analysts have pared their earnings estimates. If the current situation persists, earnings can remain subdued for some time even as benefits from new investments will take time to reflect.

Overall, while JSW Energy may as well be scripting the next leg of growth opportunities, the sudden thrust on capex and uncertainty about future benefits are causing worry.

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