India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
First Read: Jai Balaji
Purulia financial closure a big positive
„ Purulia project Phase 1A financial closure completed
Purulia project is one of the largest steel projects in India (5m mtpa steel,
1,200MW power), with 100% thermal coal integration, to be executed in modules
to address funding issues. Phase 1A of this project entails capex of Rs 18.7bn and
comprises of 2m mtpa beneficiation, 1.2m mtpa pallet, 0.66m mtpa sponge iron,
70MW power and 0.3m mtpa EAF. The company today announced financial
closure for this phase 1A - Rs12.3bn debt by SBI-led consortium and balance
Rs6.4bn through internal accruals/fresh equity.
„ Stock down on dilution concerns – misplaced, in our view
Stock has come off on low volumes on worries about potential dilution – maybe
misreading Rs6.4bn of equity requirement to be met largely from fresh equity. We
spoke to management - the consortium has mandated Rs1bn of fresh equity
(balance Rs5.4bn from internal accruals), even though cashflows can support entire
equity requirement. This is given existing high debt:equity of 2x. The financial
closure provides visibility on monetisation of its 700mn tones of coal resources.
„ Attractive opportunity to buy
We believe the current share price only reflects the value of existing operations
(based on replacement cost and 4.7x FY12E EV/EBITDA, a discount to peers). We
believe coal resources and the Purulia expansion provide significant long-term
upside.
„ Valuation: Reiterate Buy, PT Rs450
We derive our PT from a DCF-based methodology using UBS’s VCAM tool
assuming WACC of 12.3% and 1% terminal growth.
Q Jai Balaji Industries
Jai Balaji Industries is an India-based iron and steel manufacturer, with
integrated production facilities primarily in West Bengal. Its products include
direct reduced iron (DRI), pig iron, ferro-alloys, steel billets, thermomechanically treated (TMT) bars, and ductile iron (DI) pipes. It is one of the few
companies to successfully complete 1m mt greenfield capacity. It has access to
700m mt of coal resources, which it plans to use to expand in steel (5m mpta)
and power (1,200MW).
Q Statement of Risk
The key risks facing Jai Balaji Industries are execution risks, increase in interest
rates, lack of supportive funding for expansion plans, any deterioration in steel
cycle and underground coal mining risks.
No comments:
Post a Comment