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JINDAL STEEL & POWER
Power business surprises positively
Steel business revenue disappoints; EBITDA above estimate
Jindal Steel & Power’s (JSPL) standalone Q3FY11 revenue of ~INR 24.1 bn (up
37.1% Y-o-Y and 5% Q-o-Q) was ~15% below our estimate, as we had assumed
higher iron ore sales as well as partial sale of power from the 135 MW unit. Iron
ore volumes came lower than assumptions while power was fully used captively.
Due to high raw material integration, costs were below estimates. EBITDA came
5% above expectation at INR 9.4 bn, a 10% Q-o-Q growth (up 54% Y-o-Y). Net
profit, at INR 5.1 bn, was in line with our estimate.
Consolidated result snapshot: Numbers slightly above estimates
Power business was strong with PLF of 101% against our assumption of 90%,
leading to higher–than-expected sales units. As a result, EBITDA at INR 16 bn
(estimate: INR 15.1 bn, up 7% Q-o-Q) and net profit at INR 9.5 bn (estimate:
INR 9 bn, up 6% Q-o-Q) were slightly above our estimates.
135x2 MW units yet to stabilise
JSPL’s 135x2 MW units operated at an average utilisation of 35%. However,
costs at these units are high as they are yet to stabilise and thus resulted in
negative margins. Going forward, utilisation is expected to increase to ~70% in
Q4FY11E and 90% plus FY12E onwards.
Downstream steel plants ready; will fall short of semis
The 1 mtpa wire rod mill and 0.6 mtpa bar mill in Jharkhand are ready and the
0.6 mtpa medium section at Raigarh will be commissioned by next month.
However, JSPL will fall short of crude steel and will have to source steel semis
externally.
Outlook and valuations: Fully priced in; maintain ‘HOLD’
We expect steel volumes to grow ~9% Y-o-Y to ~2.5 mt in FY12E. Additionally,
Shadeed and Bolivian operations should start contributing FY12 onwards (we
have not considered Bolivia in our estimates/valuation). However, the plate mill
and DRI in Orissa have been pushed to March 2012 from earlier schedule of June
2011 and September 2011, respectively. Moreover, the Patratu steel plant in
Jharkhand has also been delayed by two years to December 2014. The upcoming
2,400 MW Tamnar II project is on track to be completed through December
2012-13. We believe most of the incrementally positive events are priced in the
stock and continue to maintain our ‘HOLD/SP’ recommendation/rating on the
stock. Our fair valuation is INR 745/share based on FY12 estimates/DCF. We
have introduced FY13 estimates.
Steel business
Steel business performs better than expectations at EBITDA level
JSPL reported sales volume of 596 kt in Q3FY11 against our expectation of 568 kt. This,
coupled with a ~INR 250/t increase in blended realization was the primary driver of
revenue which came in at INR 24 bn. However, it was below our estimate of INR 28.5 bn
as we had assumed higher iron ore sales and power from recently commissioned 135
MW. The company also sold ~290 kt of iron ore compared to our assumption of ~500 kt,
whereas power was largely used for internal purposes.
Higher usage of captive power, increased production and usage of pellets, and better
control over raw materials (iron ore and thermal coal captive, coking coal only 50%
dependency) coupled with higher realizations led to jump in EBITDA to INR 9.4 bn (our
estimate INR 9 bn). EBITDA/t expanded Q-o-Q and Y-o-Y 5% and 37%, respectively, to
INR 15.7k/t.
Progressive commissioning of 135x10 MW on track
JSPL has successfully commissioned two units of 135 MW at Raigarh and is progressing
towards commissioning the first at Angul. At Raigarh, ~200 mn units of power were
generated in Q3FY11, with current PLF of only ~35% leading to negative margins. The
units have now stabilised and expected to ramp up going forward. The entire generation
from the two units was utilized internally and no external sale was reported. The balance
two units at Raigarh are expected to be commissioned by June 2011. The cost of
generation is expected at ~INR 1.5/unit (incl. capital charges). Full commissioning of the
six units at Angul is expected to coincide with the expected completion of the 1.6 mtpa
plant by March 2012.
Power business
Strong performance above our estimates
Jindal Power (JPL) posted net sales of INR 8 bn (up 1.4% Q-o-Q and down 17.5% Y-o-Y)
and much higher than our estimate of INR 7.3 bn. Blended tariff came in at INR 3.9/unit
against our assumption of INR 4/unit. However, what surprised was the PLF achieved
during the quarter at 101% against our assumption of 90%, resulting in ~13% higher
sales units against estimates. JPL reported a net profit of INR 4.9 bn against our
estimate INR 3.9 bn, largely driven by higher sales units, lower cost, and lower capital
charges.
Tamnar II (2,400 MW) and Jharkhand projects on track
JPL reiterated that the 2,400 MW Tamnar II project is on track with the advisory
committed to the Environment Ministry having cleared the proposal. The first unit of 600
MW is expected to be commissioned by December 2012 with following units in every 3-4
months. The project will be fully commissioned by December 2013.
The Dumka (660x2 MW) and Godda (660 MW) plants are also on track and expected to
be completed by January 2014. However, financial closure for both these projects is yet
to be achieved.
Other conference call takeaways
• Sales volume expected to be ~2.1-2.2 mt in FY11E and ~2.5 mt in FY12E.
• JSPL sold ~290kt of iron ore fines and 200 kt of pellets during the quarter. The
proportion of fine sales will reduce going forward in favour of pellet production.
• The two units of 135 MW operated at an average utilization of 35%. Going forward
this will rise to ~70% in Q4FY11E and 90% plus FY12E onwards. On an average, a
single unit at 100% utilization will suffice the captive requirement till steel expansion
at Angul is completed.
• The balance eight units will be commissioned during FY12.
• The Bolivian project has started and JSPL currently is not selling iron ore as it looks
to resolve logistic issues. As of now, inventory is accumulating at Bolivia.
• The 1.5 mtpa Shadeed sponge iron plant has commenced production and
management has indicated 70% utilization in FY12.
• The 0.6 mtpa medium section mill at Raigarh is expected to undergo trial production
from next week. However, the company is short of crude steel for the same.
• The company is targeting pellet production of 4.5 mt in FY12.
• JPL achieved the highest ever PLF of 101.4% during Q3FY11.
• JPL sales mix consists of 75% merchant sales and 25% sales based on PPA.
• Merchant tariffs during the quarter average at INR 4.3/unit, whereas the blended
tariff was INR 4/unit.
• Dumka and Godda projects (663x3) and the 1350 MW (135x10) are self sufficient in
coal. The Angul project of 2,400 MW has received 50% coal linkage and management
is trying to secure 100%.
• In case CIL does not provide 100% coal requirement through linkages, JPL may use
coal from existing captive mines (with special permission) or use imported coal. JSPL
has commissioned a small coal mine in Africa and shipments have already started
from this mine.
• Current auxiliary consumption at JPL is 8% and for JSPL (captive power plants) is
10%.
Company Description
Jindal Steel & Power (JSPL) is an integrated steel producer and the largest coal-based
sponge iron producer in the world with a capacity of 1.37 mtpa. The company enjoys
significant competitive advantage through vertical integration—right from 100% captive
coal and iron ore mines to captive power generation facilities.
The company manufactures long products in its state-of-the-art rail and universal beam
mill (RUBM); it is capable of supplying the longest rails (measuring 120 meters) to the
Indian Railways and global markets. JSPL is also a pioneer in manufacturing large-sized
H-beams and columns for the infrastructure and construction sectors.
JSPL’s facilities are located primarily at Raigarh, Chhattisgarh, with iron ore and coal
mines located nearby. One of the coal mines is located 55 km away from the Raigarh
plant and has reserves of ~100 MT. Proximity to the plant enables the company to save
considerably on logistics and in maintaining low inventory levels, as coal can be supplied
to the plant on a just-in-time basis. The captive iron ore mines of the company are
located at the Tensa valley in Sundergarh district of Orissa, which is ~300 kms away
from the Raigarh plant. In addition to this, the company also has a machinery
manufacturing division at Raipur.
JSPL’s 1000MW merchant power got fully operational in September. The company
expects to start another 2640MW project in FY13E at Jharkhand.
Investment Theme
Apart from benefitting from improvement in steel outlook, JSPL has lucrative power
projects. Bolivian mining project now has improved visibility with sales expected to start
in one year. Upside possibilities include 4500MW hydel power plant (MoU signed with AP
government) and oil and gas blocks in Latin America.
Key Risks
Sharp fall in steel prices or merchant power tariff.
Delay in Bolivian mining operations.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JINDAL STEEL & POWER
Power business surprises positively
Steel business revenue disappoints; EBITDA above estimate
Jindal Steel & Power’s (JSPL) standalone Q3FY11 revenue of ~INR 24.1 bn (up
37.1% Y-o-Y and 5% Q-o-Q) was ~15% below our estimate, as we had assumed
higher iron ore sales as well as partial sale of power from the 135 MW unit. Iron
ore volumes came lower than assumptions while power was fully used captively.
Due to high raw material integration, costs were below estimates. EBITDA came
5% above expectation at INR 9.4 bn, a 10% Q-o-Q growth (up 54% Y-o-Y). Net
profit, at INR 5.1 bn, was in line with our estimate.
Consolidated result snapshot: Numbers slightly above estimates
Power business was strong with PLF of 101% against our assumption of 90%,
leading to higher–than-expected sales units. As a result, EBITDA at INR 16 bn
(estimate: INR 15.1 bn, up 7% Q-o-Q) and net profit at INR 9.5 bn (estimate:
INR 9 bn, up 6% Q-o-Q) were slightly above our estimates.
135x2 MW units yet to stabilise
JSPL’s 135x2 MW units operated at an average utilisation of 35%. However,
costs at these units are high as they are yet to stabilise and thus resulted in
negative margins. Going forward, utilisation is expected to increase to ~70% in
Q4FY11E and 90% plus FY12E onwards.
Downstream steel plants ready; will fall short of semis
The 1 mtpa wire rod mill and 0.6 mtpa bar mill in Jharkhand are ready and the
0.6 mtpa medium section at Raigarh will be commissioned by next month.
However, JSPL will fall short of crude steel and will have to source steel semis
externally.
Outlook and valuations: Fully priced in; maintain ‘HOLD’
We expect steel volumes to grow ~9% Y-o-Y to ~2.5 mt in FY12E. Additionally,
Shadeed and Bolivian operations should start contributing FY12 onwards (we
have not considered Bolivia in our estimates/valuation). However, the plate mill
and DRI in Orissa have been pushed to March 2012 from earlier schedule of June
2011 and September 2011, respectively. Moreover, the Patratu steel plant in
Jharkhand has also been delayed by two years to December 2014. The upcoming
2,400 MW Tamnar II project is on track to be completed through December
2012-13. We believe most of the incrementally positive events are priced in the
stock and continue to maintain our ‘HOLD/SP’ recommendation/rating on the
stock. Our fair valuation is INR 745/share based on FY12 estimates/DCF. We
have introduced FY13 estimates.
Steel business
Steel business performs better than expectations at EBITDA level
JSPL reported sales volume of 596 kt in Q3FY11 against our expectation of 568 kt. This,
coupled with a ~INR 250/t increase in blended realization was the primary driver of
revenue which came in at INR 24 bn. However, it was below our estimate of INR 28.5 bn
as we had assumed higher iron ore sales and power from recently commissioned 135
MW. The company also sold ~290 kt of iron ore compared to our assumption of ~500 kt,
whereas power was largely used for internal purposes.
Higher usage of captive power, increased production and usage of pellets, and better
control over raw materials (iron ore and thermal coal captive, coking coal only 50%
dependency) coupled with higher realizations led to jump in EBITDA to INR 9.4 bn (our
estimate INR 9 bn). EBITDA/t expanded Q-o-Q and Y-o-Y 5% and 37%, respectively, to
INR 15.7k/t.
Progressive commissioning of 135x10 MW on track
JSPL has successfully commissioned two units of 135 MW at Raigarh and is progressing
towards commissioning the first at Angul. At Raigarh, ~200 mn units of power were
generated in Q3FY11, with current PLF of only ~35% leading to negative margins. The
units have now stabilised and expected to ramp up going forward. The entire generation
from the two units was utilized internally and no external sale was reported. The balance
two units at Raigarh are expected to be commissioned by June 2011. The cost of
generation is expected at ~INR 1.5/unit (incl. capital charges). Full commissioning of the
six units at Angul is expected to coincide with the expected completion of the 1.6 mtpa
plant by March 2012.
Power business
Strong performance above our estimates
Jindal Power (JPL) posted net sales of INR 8 bn (up 1.4% Q-o-Q and down 17.5% Y-o-Y)
and much higher than our estimate of INR 7.3 bn. Blended tariff came in at INR 3.9/unit
against our assumption of INR 4/unit. However, what surprised was the PLF achieved
during the quarter at 101% against our assumption of 90%, resulting in ~13% higher
sales units against estimates. JPL reported a net profit of INR 4.9 bn against our
estimate INR 3.9 bn, largely driven by higher sales units, lower cost, and lower capital
charges.
Tamnar II (2,400 MW) and Jharkhand projects on track
JPL reiterated that the 2,400 MW Tamnar II project is on track with the advisory
committed to the Environment Ministry having cleared the proposal. The first unit of 600
MW is expected to be commissioned by December 2012 with following units in every 3-4
months. The project will be fully commissioned by December 2013.
The Dumka (660x2 MW) and Godda (660 MW) plants are also on track and expected to
be completed by January 2014. However, financial closure for both these projects is yet
to be achieved.
Other conference call takeaways
• Sales volume expected to be ~2.1-2.2 mt in FY11E and ~2.5 mt in FY12E.
• JSPL sold ~290kt of iron ore fines and 200 kt of pellets during the quarter. The
proportion of fine sales will reduce going forward in favour of pellet production.
• The two units of 135 MW operated at an average utilization of 35%. Going forward
this will rise to ~70% in Q4FY11E and 90% plus FY12E onwards. On an average, a
single unit at 100% utilization will suffice the captive requirement till steel expansion
at Angul is completed.
• The balance eight units will be commissioned during FY12.
• The Bolivian project has started and JSPL currently is not selling iron ore as it looks
to resolve logistic issues. As of now, inventory is accumulating at Bolivia.
• The 1.5 mtpa Shadeed sponge iron plant has commenced production and
management has indicated 70% utilization in FY12.
• The 0.6 mtpa medium section mill at Raigarh is expected to undergo trial production
from next week. However, the company is short of crude steel for the same.
• The company is targeting pellet production of 4.5 mt in FY12.
• JPL achieved the highest ever PLF of 101.4% during Q3FY11.
• JPL sales mix consists of 75% merchant sales and 25% sales based on PPA.
• Merchant tariffs during the quarter average at INR 4.3/unit, whereas the blended
tariff was INR 4/unit.
• Dumka and Godda projects (663x3) and the 1350 MW (135x10) are self sufficient in
coal. The Angul project of 2,400 MW has received 50% coal linkage and management
is trying to secure 100%.
• In case CIL does not provide 100% coal requirement through linkages, JPL may use
coal from existing captive mines (with special permission) or use imported coal. JSPL
has commissioned a small coal mine in Africa and shipments have already started
from this mine.
• Current auxiliary consumption at JPL is 8% and for JSPL (captive power plants) is
10%.
Company Description
Jindal Steel & Power (JSPL) is an integrated steel producer and the largest coal-based
sponge iron producer in the world with a capacity of 1.37 mtpa. The company enjoys
significant competitive advantage through vertical integration—right from 100% captive
coal and iron ore mines to captive power generation facilities.
The company manufactures long products in its state-of-the-art rail and universal beam
mill (RUBM); it is capable of supplying the longest rails (measuring 120 meters) to the
Indian Railways and global markets. JSPL is also a pioneer in manufacturing large-sized
H-beams and columns for the infrastructure and construction sectors.
JSPL’s facilities are located primarily at Raigarh, Chhattisgarh, with iron ore and coal
mines located nearby. One of the coal mines is located 55 km away from the Raigarh
plant and has reserves of ~100 MT. Proximity to the plant enables the company to save
considerably on logistics and in maintaining low inventory levels, as coal can be supplied
to the plant on a just-in-time basis. The captive iron ore mines of the company are
located at the Tensa valley in Sundergarh district of Orissa, which is ~300 kms away
from the Raigarh plant. In addition to this, the company also has a machinery
manufacturing division at Raipur.
JSPL’s 1000MW merchant power got fully operational in September. The company
expects to start another 2640MW project in FY13E at Jharkhand.
Investment Theme
Apart from benefitting from improvement in steel outlook, JSPL has lucrative power
projects. Bolivian mining project now has improved visibility with sales expected to start
in one year. Upside possibilities include 4500MW hydel power plant (MoU signed with AP
government) and oil and gas blocks in Latin America.
Key Risks
Sharp fall in steel prices or merchant power tariff.
Delay in Bolivian mining operations.
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