JSW Energy Ltd’s decision to scrap its plans to enter the electric vehicle (EV) segment has brought much relief to its investors. The stock has risen in recent trading sessions, although it gave up some of those gains on Wednesday.

According to Motilal Oswal Securities Ltd, the company spent 25 crore to set up a team to evaluate the EV business. While that money may have gone down the drain, investors are relieved that it backed down from the plan to invest as much as 6,500 crore in an unrelated business. The decision underscores the company’s prudence regarding investments. It had evaluated several buyouts in the past, but made only one notable acquisition—that of two hydropower plants from Jaiprakash Power Ventures, wherein the power offtake was assured.

The cautious approach helped JSW Energy avoid the mistakes made by other private sector firms. Limited capital expenditure, and a focus on returns and cash flows ensured a healthy balance sheet, which is rare among private sector power companies. “Its net debt to equity is ~1.1x and net debt to EBITDA is ~4x, the lowest among listed private power sector players," analysts at Motilal Oswal said in a note. Ebitda stands for earnings before interest, tax, depreciation and amortization.

The firm plans to leverage the balance sheet for growth opportunities in its power and related businesses. A large number of stressed power plants are awaiting financial resolution. With power demand in India steadily rising and few new plants being built, analysts see greater economic value for these stressed power plants in the coming years. JSW Energy, with its relatively low leverage, is well suited to bid for these power plants.

But some analysts are also worried that too much prudence may result in missed opportunities. The company was slow in bidding for the 1,980 megawatts Prayagraj Power Generation Co. Ltd. By the time it submitted its final bid, the plant had been sold. “JSW Energy has a strong balance sheet to benefit from consolidation in the generation sector, but value creation will be subject to when, and at what value, it will be able to conclude deals," added analysts at Motilal Oswal.

While such opportunities will take time to play out, the company’s fortunes will continue to be determined by its ability to manage fuel costs and incremental power purchasing contracts for its idle capacity.

Two power plants of JSW Energy are dependent on imported coal and the related volatility in input prices have been a challenge. One of the plants is not fully tied-up with power purchase contracts, resulting in sub-optimal returns. It operated at 57% utilization level in the December quarter. Perhaps the struggle to operate at optimum capacity is adding to its cautious stance as far as growth opportunities are concerned.