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Jindal Steel and Power Limited
Conference takeaways
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
Softer merchant power outlook, JSPL better positioned
JSPL said that it expects merchant power tariff to ease. JSPL guided to merchant
tariff rates between Rs3.5 –Rs4.5/Kwh over the next 12 months. However Mgmt
highlighted that it is better positioned relative to its power peers due to captive
coal reserves of 1.1bn tons (excluding reserves for coal to liquid).
Captive power capacity to ramp up over FY12
The recently commissioned 2x135MW captive power units at Raigarh are now
operating at PLF of ~75-80% (34-35% in Dec Q). It plans to sell ~50% of the
power externally on merchant basis. Unit 1 of 8x135MW captive power (Orissa) is
expected to be commissioned by Mar 11. The remaining units at Raigarh and
Orissa will be commissioned in FY12 in phases.
JPL: 4x 600MW expansion to kick in FY13
The project has been cleared by the Advisory Committee, but construction is on
hold as final approval is pending. It expects to commission unit I in Dec 12. JSPL
has coal linkage for 2x 600MW and expects to get linkage for the balance
1200MW soon. In case of shortfall it plans to 1) seek approval to use coal from its
existing mines (allocated for Tamnar I); 2) use coal from its overseas coal assets.
Domestic steel prices near peak; vols. to grow 25% in FY12
JSPL sees limited scope for further increase in domestic steel prices from current
levels. JSPL said that further increase in domestic steel prices could affect
demand negatively. It expects steel volumes of 2.5mt in FY12. Pellet sales
(current capacity 4.5mtpa) are highly profitable. JSPL is targeting ~90-95%
utilizations in FY12 (50% will be sold externally). Growth in steel volumes will
come from commissioning of 1.6mtpa steel unit at Angul by March 12.
Other takeaways
1.5mtpa HBI unit has been commissioned in 4QFY11. Current spot prices imply
~US$100/t of EBITDA. Production of iron ore has commenced at Bolivia mines.
Exports are likely to start after the logistics issues are resolved.
Price objective basis & risk
Jindal Steel and Power Limited (XJDLF)
Our PO of Rs642 is based on SOTP valuation of JSPL's steel and power
business based on DCF. This implies Rs205 for steel business (including
Shadeed Steel) and Rs437 for the power business. Our NPV calculation is based
on a WACC of 12.5% and terminal growth rate of 0%. Our NPV of steel business
implies 6x FY12e EBITDA.
Upside risks to our valuation are higher steel prices, higher power tariff, better
visibility on the execution of Bolivia mine project. Downside risks to our valuation
are sharper-than-expected fall in steel prices, lower-than-expected steel
production, and lower power tariff.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jindal Steel and Power Limited
Conference takeaways
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
Softer merchant power outlook, JSPL better positioned
JSPL said that it expects merchant power tariff to ease. JSPL guided to merchant
tariff rates between Rs3.5 –Rs4.5/Kwh over the next 12 months. However Mgmt
highlighted that it is better positioned relative to its power peers due to captive
coal reserves of 1.1bn tons (excluding reserves for coal to liquid).
Captive power capacity to ramp up over FY12
The recently commissioned 2x135MW captive power units at Raigarh are now
operating at PLF of ~75-80% (34-35% in Dec Q). It plans to sell ~50% of the
power externally on merchant basis. Unit 1 of 8x135MW captive power (Orissa) is
expected to be commissioned by Mar 11. The remaining units at Raigarh and
Orissa will be commissioned in FY12 in phases.
JPL: 4x 600MW expansion to kick in FY13
The project has been cleared by the Advisory Committee, but construction is on
hold as final approval is pending. It expects to commission unit I in Dec 12. JSPL
has coal linkage for 2x 600MW and expects to get linkage for the balance
1200MW soon. In case of shortfall it plans to 1) seek approval to use coal from its
existing mines (allocated for Tamnar I); 2) use coal from its overseas coal assets.
Domestic steel prices near peak; vols. to grow 25% in FY12
JSPL sees limited scope for further increase in domestic steel prices from current
levels. JSPL said that further increase in domestic steel prices could affect
demand negatively. It expects steel volumes of 2.5mt in FY12. Pellet sales
(current capacity 4.5mtpa) are highly profitable. JSPL is targeting ~90-95%
utilizations in FY12 (50% will be sold externally). Growth in steel volumes will
come from commissioning of 1.6mtpa steel unit at Angul by March 12.
Other takeaways
1.5mtpa HBI unit has been commissioned in 4QFY11. Current spot prices imply
~US$100/t of EBITDA. Production of iron ore has commenced at Bolivia mines.
Exports are likely to start after the logistics issues are resolved.
Price objective basis & risk
Jindal Steel and Power Limited (XJDLF)
Our PO of Rs642 is based on SOTP valuation of JSPL's steel and power
business based on DCF. This implies Rs205 for steel business (including
Shadeed Steel) and Rs437 for the power business. Our NPV calculation is based
on a WACC of 12.5% and terminal growth rate of 0%. Our NPV of steel business
implies 6x FY12e EBITDA.
Upside risks to our valuation are higher steel prices, higher power tariff, better
visibility on the execution of Bolivia mine project. Downside risks to our valuation
are sharper-than-expected fall in steel prices, lower-than-expected steel
production, and lower power tariff.
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