JINDAL STEEL & POWER Decent quarter :: Edelweiss,

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􀂃 Standalone steel business surprises; power business in line
Jindal Steel & Power (JSPL) reported a strong set of numbers for the standalone
steel business in Q2FY11. While revenues were ~6% above estimates at INR
~23 bn (up 43.6% Y-o-Y and 8.3% Q-o-Q), EBITDA (INR 8.5 bn, up 8% Q-o-Q)
and net profit (INR 4.8 bn, up 10% Q-o-Q) were 22% and 27% above estimates,
respectively. Better-than-expected volume, high margin pellet sales, and lower
tax rate boosted net profit. Consolidated net sales of INR 30.8 bn (up 25.9% Yo-
Y and 2.7% Q-o-Q) were in line with our estimate of INR 29.9 bn. EBITDA, at
INR 15.0 bn (estimate: INR 13.8 bn), and net profit of INR 8.9 bn (estimate:
INR 8.4 bn) dipped 4% and 7% Q-o-Q, respectively.
􀂃 JPL: Maintenance shutdown and lower realisation impact revenue
Considering the sluggish thermal power demand in the monsoon quarter, JPL
shutdown two of its 250 MW units for maintenance for 15 and 17 days. This
resulted in PLF dropping to 89% compared to 101% in Q1FY11. Tariff
disappointed at INR 4.3/unit compared to INR 4.6/unit Q-o-Q. Tariff decline
coupled with lower generation resulted in revenue and net profit of INR 7.9 bn
and INR 4.6 bn, respectively. Our revenue estimate was INR 8.2 bn and net
profit estimate was INR 4.6 bn.
􀂃 Outlook and valuations: Growth ahead; maintain ‘HOLD’
The long-term growth story remains intact with greenfield expansions in steel at
Angul (1.6 mtpa by March 2012) and Jharkhand (3 mtpa, December 2012). The
2,400 MW merchant power project is expected to get fully commissioned during
FY13-14 and is expected to drive power business. Mid term drivers will be the
progressive commissioning of the 10x135MW units (one already commissioned
and second under synchronization) and volume growth from the 0.6 mtpa
medium section mill. The Jharkhand projects (660 MW x3) are also expected to
be commissioned by FY14-15 (not considered in our valuation). Led by the steel
business performance, we are revising up our consolidated FY11 and FY12
EBITDA estimates by 3.5% and 3.9%, respectively. We raise our fair valuation
from INR 700/share to INR 752/share. The current stock price factors in most of
the upsides from the steel and power projects. We maintain our ‘HOLD/Sector
Performer’ recommendation/rating.