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JSPL’s 3Q consol net profit at Rs9.5bn was up 9% YoY and 7% below our
estimates due to lower than expected realizations in both power and steel
businesses. We expect JSPL’s steel business margins to expand in FY12 given
improving steel prices (due to cost push). This, combined with rising volumes
in both power and steel post commissioning of multiple projects will drive
31% EPS CAGR over FY11-13. We upgrade FY12-13 EPS by 3-5% factoring in
higher steel prices and a slight delay in the commissioning of captive power
units. We maintain BUY with a higher FY13-based SOTP target price of Rs800.
Jindal Power – 4% below estimates; Steel profits 6% below estimates
Jindal Power reported 3Q net profit of Rs4.9bn, down 16% YoY, which was 4%
below our estimates mainly due to lower than expected realizations – Rs3.9/kWh
(versus our estimate of Rs4.25/kWh). The company has guided for Rs3.75-
4.5/kWh realization for FY12. Our current assumption builds in Rs4/kWh average
realization for FY12. In the steel business, JSPL’s 3Q net profit came in 6% below
estimates, while rising a strong 54% YoY, mainly due to slightly lower ASPs. Steel
margins, though improved 160 bps QoQ. The company is now using more pellets
(made using surplus fines) for steel production, which is lowering costs and is also
selling surplus pellets externally.
Steel business margins should expand in FY12
Steel prices are rising globally and in India on the back of substantial cost-push
driven by rising iron ore and coking coal prices. Given 100% quasi-captive iron
ore, 100% captive thermal coal, and lower usage of coking coal than blast furnace
based peers, JSPL will see ASPs rise faster than costs, resulting in higher margins.
Strong volume growth ahead in both power and steel
JSPL has thus far commissioned 2 units of 135MW at Raigarh and intends to
commission the balance eight units of 135MW each by FY12 end. We have built in
further delays for these capacities in our assumptions. JSPL will commission its
Greenfield steel plant in Angul, Orissa by early-FY13. The new plant will consume
less thermal coal, will not use any coking coal and will thus be more profitable
than the Raigarh plant. Proportion of plates will also rise in product-mix. We see
JSPL’s steel margins improving further post the Angul plant commissioning.
We upgrade FY12-13 EPS by 3-5%; maintain BUY.
We upgrade FY12-13 EPS by 3-5% factoring in higher steel ASPs. FY11 EPS has
been cut marginally to factor in delays in commissioning of the captive power
units. Our FY13-based SOTP target price is now Rs800/sh (Rs300/sh for steel and
Rs500/sh for power). We remain BUYers and the stock remains one of our top
picks in both power and steel sectors.
Highlights of the conference call
Merchant tariff for FY12 – the company expects the tariff to be in range of
Rs3.75/kWh-Rs4.5kWh. The merchant tariff in 3Q was ~Rs4.28/kWh.
Angul expansion – The Company has replied to the show cause notice
issued by MoEF and the work has not stopped at the site. Plate mill
(1.5mtpa) is expected to commission by March 2012 and the DRI plant
(2mtpa) is expected to commission in early FY13.
Tamnar II (2.4GW) expansion – work has not yet resumed at the site;
company however expects the first unit of 600MW to commission by
December 2012 as per the original schedule.
Alternatives if Coal India is not able to supply coal for Tamnar II – The
Company is getting indications that Coal India supplies would be for 60-
70% of requirements only for all linkage based projects. The company has
an alternative of seeking government approval to use its current captive
coal mines for making up for the short supply or the company might
import coal from its mines in South Africa to meet the balance coal
requirements.
Jharkhand expansion projects (total 1,980MW) – the company has
received the bids for equipment supply and would be placing the final
orders for both Dumka (660MW) and Godda (1,320MW) projects shortly.
Captive power units in Raigarh (4x135MW) and Angul (6 x135MW) – two
units of 135MW have been commissioned so far and all the power
generated is being consumed internally as of now. The company expects
the balance eight units (2 at Raigarh and 6 at Angul) to be commissioned
by the end of FY12. The first two units have not stabilized so far and the
PLF has been only ~35%. The company expects the cost of generation
using coal middlings to be ~Rs1.5/kWh.
Shadeed – The Company has 1.5mtpa HBI capacity at Shadeed.
Commercial operations have started from 1st of January, 2011. The
company is targeting 70% utilization of this facility in FY12.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JSPL’s 3Q consol net profit at Rs9.5bn was up 9% YoY and 7% below our
estimates due to lower than expected realizations in both power and steel
businesses. We expect JSPL’s steel business margins to expand in FY12 given
improving steel prices (due to cost push). This, combined with rising volumes
in both power and steel post commissioning of multiple projects will drive
31% EPS CAGR over FY11-13. We upgrade FY12-13 EPS by 3-5% factoring in
higher steel prices and a slight delay in the commissioning of captive power
units. We maintain BUY with a higher FY13-based SOTP target price of Rs800.
Jindal Power – 4% below estimates; Steel profits 6% below estimates
Jindal Power reported 3Q net profit of Rs4.9bn, down 16% YoY, which was 4%
below our estimates mainly due to lower than expected realizations – Rs3.9/kWh
(versus our estimate of Rs4.25/kWh). The company has guided for Rs3.75-
4.5/kWh realization for FY12. Our current assumption builds in Rs4/kWh average
realization for FY12. In the steel business, JSPL’s 3Q net profit came in 6% below
estimates, while rising a strong 54% YoY, mainly due to slightly lower ASPs. Steel
margins, though improved 160 bps QoQ. The company is now using more pellets
(made using surplus fines) for steel production, which is lowering costs and is also
selling surplus pellets externally.
Steel business margins should expand in FY12
Steel prices are rising globally and in India on the back of substantial cost-push
driven by rising iron ore and coking coal prices. Given 100% quasi-captive iron
ore, 100% captive thermal coal, and lower usage of coking coal than blast furnace
based peers, JSPL will see ASPs rise faster than costs, resulting in higher margins.
Strong volume growth ahead in both power and steel
JSPL has thus far commissioned 2 units of 135MW at Raigarh and intends to
commission the balance eight units of 135MW each by FY12 end. We have built in
further delays for these capacities in our assumptions. JSPL will commission its
Greenfield steel plant in Angul, Orissa by early-FY13. The new plant will consume
less thermal coal, will not use any coking coal and will thus be more profitable
than the Raigarh plant. Proportion of plates will also rise in product-mix. We see
JSPL’s steel margins improving further post the Angul plant commissioning.
We upgrade FY12-13 EPS by 3-5%; maintain BUY.
We upgrade FY12-13 EPS by 3-5% factoring in higher steel ASPs. FY11 EPS has
been cut marginally to factor in delays in commissioning of the captive power
units. Our FY13-based SOTP target price is now Rs800/sh (Rs300/sh for steel and
Rs500/sh for power). We remain BUYers and the stock remains one of our top
picks in both power and steel sectors.
Highlights of the conference call
Merchant tariff for FY12 – the company expects the tariff to be in range of
Rs3.75/kWh-Rs4.5kWh. The merchant tariff in 3Q was ~Rs4.28/kWh.
Angul expansion – The Company has replied to the show cause notice
issued by MoEF and the work has not stopped at the site. Plate mill
(1.5mtpa) is expected to commission by March 2012 and the DRI plant
(2mtpa) is expected to commission in early FY13.
Tamnar II (2.4GW) expansion – work has not yet resumed at the site;
company however expects the first unit of 600MW to commission by
December 2012 as per the original schedule.
Alternatives if Coal India is not able to supply coal for Tamnar II – The
Company is getting indications that Coal India supplies would be for 60-
70% of requirements only for all linkage based projects. The company has
an alternative of seeking government approval to use its current captive
coal mines for making up for the short supply or the company might
import coal from its mines in South Africa to meet the balance coal
requirements.
Jharkhand expansion projects (total 1,980MW) – the company has
received the bids for equipment supply and would be placing the final
orders for both Dumka (660MW) and Godda (1,320MW) projects shortly.
Captive power units in Raigarh (4x135MW) and Angul (6 x135MW) – two
units of 135MW have been commissioned so far and all the power
generated is being consumed internally as of now. The company expects
the balance eight units (2 at Raigarh and 6 at Angul) to be commissioned
by the end of FY12. The first two units have not stabilized so far and the
PLF has been only ~35%. The company expects the cost of generation
using coal middlings to be ~Rs1.5/kWh.
Shadeed – The Company has 1.5mtpa HBI capacity at Shadeed.
Commercial operations have started from 1st of January, 2011. The
company is targeting 70% utilization of this facility in FY12.
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