Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jindal Steel and Power (JSP)
Metals & Mining
Delay in projects, weak merchant power tariffs drives earning cuts, REDUCE. We
cut our FY2011-13E EPS estimates by 6.2% - 14.5% driven by (1) likely delay in commissioning
of captive power units and (2) weaker merchant tariff realizations. The delay in steel projects,
though common, is a concern noting the high execution standards of JSPL. The stock is expensive
at 9.4X FY2012E and 7.6X FY2013E EBITDA. REDUCE with a revised TP of Rs640; the cut in
power business TP is compensated by the steel business and option value for the Bolivian mine.
Expensive valuations and delays in execution drive our REDUCE rating
We revise our TP to Rs640 on JSPL based on end-FY2012E financials even as we lower power
business value by Rs27 to Rs333. Weakness in the short-term power market and delays in
commissioning of captive units and Tamnar II project leads a decline in fair value. The fair value of
the power business is based on March 2012 SOTP. Our valuation comprises of (1) Rs174/share
(Rs162 bn) for the 1,000 MW merchant power plant (Tamnar I), (2) Rs70/share (Rs65 bn) as value
enhancement from the proposed 2,400 MW merchant power plant at Raigarh and (3) Rs89/share
(Rs83 bn) for the 1,350 MW captive power plant being built in Angul and Raigarh—we assume
that power generated out of this will be sold entirely on a merchant basis instead of being used
for the steel business.
We revise our fair value of the steel business to Rs282, based on 6.5X FY2012E EBITDA. We do
not value assign any value to new steel projects except Shadeed Iron, instead we (1) assume
continuity of pellet sales beyond what will be captive requirement based on existing capacity and
(2) value 810MW captive power pant in Orissa and 540 MW power plant in Chhattisgarh entirely
on merchant power sales. We also assign Rs25 as option value for Bolivian iron ore mine.
Limited traction on planned projects in the power business, delays in steel
We highlight that progress on JPL’s planned projects including Tamnar expansion of 2,400 MW
has been muted. Although the TOR for Tamnar II was restored in 2QFY11 after running into
environmental hurdles earlier, the project is yet to receive formal environmental clearance and
construction work at the site is yet to commence. We note that JPL has incurred an estimated
capex of ~Rs5.7 bn (4.3% of total project cost) as of March 2010 on Tamnar expansion project.
We do not see any traction on the 1,980 MW of additional capacities planned to be built in
Jharkhand, across two locations—Gudda and Dumka (see Exhibit 3).
We are also surprised with the delay in commissioning of steel project including plate mill and gasbased
DRI plant. JSPL cited the downturn and financial-crisis in 2008 and 2009 as the primary
reason for delay. Delays are quite common given the myriad regulatory approvals required for
setting up any greenfield project, however, we are a touch disappointed noting the high standards
that JSPL sets for any project execution
Cut earnings estimates for FY2011-13E
We lower consolidated EPS by 10.3%, 14.5% and 6.2% to Rs41, Rs48 and Rs55.6 for
FY2011E, FY2012E and FY2013E, respectively. We lower JPL’s earnings estimates by 13% -
18% for FY2011-12E. A revision in estimates in JPL is on account of a reduction in our nearterm
realization assumption to Rs4.3/KwH from Rs4.8KwH. We also model delays in the
commissioning of captive power units of 1350 MW (10X135 MW). We increase our earnings
estimate for the steel business for FY2012E; the revision is entirely driven by the increase in
our price forecast to US$135/ ton for benchmark 63.5% Indian iron ore. JSPL, having 100%
iron ore self-sufficiency, will benefit from the cost-push based increase in steel prices. We
increase our steel business earnings estimate by 10.8% for FY2012E; our FY2013E estimate
remains largely unchanged.
Key takeaways from 3QFY11 earnings call
The company produced around 800 K tons of pellets during the quarter. Around 200K
tons of pellets were sold externally at an average price of Rs6500/ton.
The company also sold around 200K tons of iron ore fines during the quarter at similar
realizations. The company has guided for decline in iron ore fines sales in future.
The company expects steel deliveries for FY2012E to be around 2.5 mn tons. It also
expects pellet production levels to be at around 90% capacity utilization. Pellet sales will
vary depending upon the market conditions.
Commercial production has started for the 1.5mtpa DRI plant of Shadeed Iron and Steel
three months ahead of schedule and has already sold its first consignment. The company
expects the plant to operate at 70% capacity utilization in FY2012E. JSPL has secured gas
from Oman Government at US$1/ mmbtu; JSPL will require 10 mmbtu to produce a ton
of sponge iron.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Jindal Steel and Power (JSP)
Metals & Mining
Delay in projects, weak merchant power tariffs drives earning cuts, REDUCE. We
cut our FY2011-13E EPS estimates by 6.2% - 14.5% driven by (1) likely delay in commissioning
of captive power units and (2) weaker merchant tariff realizations. The delay in steel projects,
though common, is a concern noting the high execution standards of JSPL. The stock is expensive
at 9.4X FY2012E and 7.6X FY2013E EBITDA. REDUCE with a revised TP of Rs640; the cut in
power business TP is compensated by the steel business and option value for the Bolivian mine.
Expensive valuations and delays in execution drive our REDUCE rating
We revise our TP to Rs640 on JSPL based on end-FY2012E financials even as we lower power
business value by Rs27 to Rs333. Weakness in the short-term power market and delays in
commissioning of captive units and Tamnar II project leads a decline in fair value. The fair value of
the power business is based on March 2012 SOTP. Our valuation comprises of (1) Rs174/share
(Rs162 bn) for the 1,000 MW merchant power plant (Tamnar I), (2) Rs70/share (Rs65 bn) as value
enhancement from the proposed 2,400 MW merchant power plant at Raigarh and (3) Rs89/share
(Rs83 bn) for the 1,350 MW captive power plant being built in Angul and Raigarh—we assume
that power generated out of this will be sold entirely on a merchant basis instead of being used
for the steel business.
We revise our fair value of the steel business to Rs282, based on 6.5X FY2012E EBITDA. We do
not value assign any value to new steel projects except Shadeed Iron, instead we (1) assume
continuity of pellet sales beyond what will be captive requirement based on existing capacity and
(2) value 810MW captive power pant in Orissa and 540 MW power plant in Chhattisgarh entirely
on merchant power sales. We also assign Rs25 as option value for Bolivian iron ore mine.
Limited traction on planned projects in the power business, delays in steel
We highlight that progress on JPL’s planned projects including Tamnar expansion of 2,400 MW
has been muted. Although the TOR for Tamnar II was restored in 2QFY11 after running into
environmental hurdles earlier, the project is yet to receive formal environmental clearance and
construction work at the site is yet to commence. We note that JPL has incurred an estimated
capex of ~Rs5.7 bn (4.3% of total project cost) as of March 2010 on Tamnar expansion project.
We do not see any traction on the 1,980 MW of additional capacities planned to be built in
Jharkhand, across two locations—Gudda and Dumka (see Exhibit 3).
We are also surprised with the delay in commissioning of steel project including plate mill and gasbased
DRI plant. JSPL cited the downturn and financial-crisis in 2008 and 2009 as the primary
reason for delay. Delays are quite common given the myriad regulatory approvals required for
setting up any greenfield project, however, we are a touch disappointed noting the high standards
that JSPL sets for any project execution
Cut earnings estimates for FY2011-13E
We lower consolidated EPS by 10.3%, 14.5% and 6.2% to Rs41, Rs48 and Rs55.6 for
FY2011E, FY2012E and FY2013E, respectively. We lower JPL’s earnings estimates by 13% -
18% for FY2011-12E. A revision in estimates in JPL is on account of a reduction in our nearterm
realization assumption to Rs4.3/KwH from Rs4.8KwH. We also model delays in the
commissioning of captive power units of 1350 MW (10X135 MW). We increase our earnings
estimate for the steel business for FY2012E; the revision is entirely driven by the increase in
our price forecast to US$135/ ton for benchmark 63.5% Indian iron ore. JSPL, having 100%
iron ore self-sufficiency, will benefit from the cost-push based increase in steel prices. We
increase our steel business earnings estimate by 10.8% for FY2012E; our FY2013E estimate
remains largely unchanged.
Key takeaways from 3QFY11 earnings call
The company produced around 800 K tons of pellets during the quarter. Around 200K
tons of pellets were sold externally at an average price of Rs6500/ton.
The company also sold around 200K tons of iron ore fines during the quarter at similar
realizations. The company has guided for decline in iron ore fines sales in future.
The company expects steel deliveries for FY2012E to be around 2.5 mn tons. It also
expects pellet production levels to be at around 90% capacity utilization. Pellet sales will
vary depending upon the market conditions.
Commercial production has started for the 1.5mtpa DRI plant of Shadeed Iron and Steel
three months ahead of schedule and has already sold its first consignment. The company
expects the plant to operate at 70% capacity utilization in FY2012E. JSPL has secured gas
from Oman Government at US$1/ mmbtu; JSPL will require 10 mmbtu to produce a ton
of sponge iron.
No comments:
Post a Comment