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UBS Investment Research
Jai Balaji Industries
Stock flat but progress in execution
�� Stock back to our initiation levels, in line with sector correction
Jai Balaji (JBIL) stock price has corrected back to our initiation price levels,
correcting in line with broad steel sector. We spoke to the management and want to
highlight that execution progress remains on-track. We believe the current share
price only reflects the value of existing operations (based on replacement cost and
5x FY12E EV/EBITDA, a discount to peers). Coal resources (700mn mt) and the
Purulia project provide significant long-term upside potential, in our view
�� Purulia project execution on track
Financial closure for Phase 1a of Purulia project (Rs18bn) is on track and is
expected by company to be completed by end of December. With this, physical
work is likely to begin in Jan-Feb 2011. Land, water linkage and environment
approvals are already in place for the project. We expect the benefits of JBIL’s
coal resources and mega Purulia project to flow in from FY13 end
�� DI Pipe ramping up with initial market success
DI pipes plant has been commercially commissioned in Nov. The company has
already won tenders with 2 state governments, reflecting market acceptance of the
product. This product is key to our forecast EBITDA CAGR of 50% in FY10-13E
�� Valuation: Reiterate Buy, PT Rs450
We derive our PT from a DCF-based methodology and explicitly forecast longterm
valuation drivers using UBS’s VCAM tool assuming WACC of 12.3% and
1% terminal growth, and implies 6.6x FY12E EV/EBITDA
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