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Jindal Steel and Power (JNSP.BO)
4QFY11 Weighted Down by Logistical Issues
4QFY11 PAT ~12% below estimate — JSPL’s 4QFY11 PAT at Rs10.1bn (up 4% YoY,)
was 12% below CIRA est. of Rs11.4bn due to lower-than-expected pellet sales, slightly
higher raw material costs (5% above est.) and higher effective tax rates. Steel
realizations increased ~8-10% QoQ and were in line with CIRA estimates.
Operationally, in-line quarter — Metallics (DRI&Pig Iron), steel and pellet production
were broadly in line with estimates. The company produced 867k tons of pellets but
could sell only ~225k tons due to logistical issues which have been subsequently
resolved.
Jindal Power reported in line numbers — Jindal Power’s 4QFY11 PAT at Rs4.96bn
was in line with CIRA estimate of Rs4.94bn. Operating efficiencies were healthy with
PLF of 100.8%. Implied realization (assuming 8% auxiliary consumption) at
Rs4.13/kwh was ~6% below CIRA estimate of Rs4.4/kwh.
Angul project execution continues — JSPL has commissioned Unit 1 (135MW) of
810MW (6x135MW) power project at Angul in March 2011. The company has yet to
receive any communication from state government regarding environmental clearance
issues and execution on the ground is continuing.
Rocklands Richfields acquisition — JSPL has announced on-market takeover offer
for Rocklands Richfields Limited. The offer values Rockland's total equity at
approximately AU$88mn. JSPL currently holds a 14.46% interest in Rockland.
Rockland has rights to develop coking coal tenements in Australia and posted a
consolidated net loss after tax of AU$13.3m for the year ending 30 June 2010.
Maintain Hold — JSPL’s integrated operations and access to captive raw material give
the company an edge over peers. However, rich valuations limit upside from current
levels. We will get back with more details post the results conference call.
Jindal Steel and Power
Company description
Jindal Steel and Power (JSPL) came into existence in 1998 after the demerger of
Jindal Strips Limited. Over the past 10 years, JSPL has transformed itself from
being a producer of sponge iron to a diversified conglomerate having presence in
steel manufacturing, power generation and mining a wide range of minerals ranging
from iron ore and coal to diamonds and limestone. The company also has presence
in oil, gas and infrastructure sectors.
JSPL owns ~180m tonnes of domestic iron ore, ~2.56bn tonnes of domestic thermal
coal and ~20bn tonnes of iron ore in Bolivia. The company has ~2.4mtpa steel and
~1622MW power capacity currently operational.
JSPL is a part of O.P. Jindal Group and has ~15,000 employees
Investment strategy
JSPL, with its strong execution, cash generation and balance sheet management,
has emerged as one of the most integrated steel and power companies in India.
Access to captive raw material supplies for steel and power, flexibility to vary steel
product mix,10 years of timely execution without dilution and low cost of power
generation give JSPL an edge over its peers in both power and steel.
JSPL’s stock is up 5.2x/13x in past 2/5 yrs (2.1x/2.2x for Sensex). Sharp
outperformance over past2/5 years factors in almost all positives about the
company. Our target price factors in 5,380MW capacity in Jindal Power, 2.4mntpa
steel capacity, ~2mntpa surplus pellet capacity, 1,350MW captive power in JSPL,
1.5mntpa iron ore mining in Bolivia and Shadeed acquisition.
Valuation
We value JSPL's power business using a discounted cash flow approach as power
plants generate largely predictable cash flows for fixed time periods. While applying
DCF one can choose free cash flow to the firm (FCF) or free cash flow to equity
(FCFE). We prefer FCFE as individual projects are highly geared and gearing
changes as debt is rapidly paid off.
We value JSPL's steel business at 7x FY12 EV/EBITDA - at a discount to Tata Steel
India's target EV/EBITDA multiple of 7.5x. We use a discount given (1) Tata Steel
India's scale of operations at 6.8mtpa vs 2.4mtpa for JSPL, (2) Tata Steel India's
100% captive iron ore vs. 50-60% for JSPL and 3) Tata Steel's product mix being
largely high end relative to JSPL. Both companies have ~55-60% of captive coal.
Tata Steel has 55-60% coking coal. JSPL has 100% thermal coal, but no coking
coal.
If we assume JSPL executes all its power projects in line with our assumptions, we
arrive at a value of Rs676/share. This includes Rs204 for the steel business, Rs19
for Bolivia, Rs325 for Jindal Power, Rs86 for 1,350MW captive power plants and
Rs40 for excess power purchased from JPL at fixed prices. At our target price the
stock would trade at a P/E of 11x and EV/EBITDA of 9.2x FY12E.
Risks
Our quantitative risk-rating system, which tracks 260-day historical share price
volatility, assigns a Low Risk rating to JSPL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jindal Steel and Power (JNSP.BO)
4QFY11 Weighted Down by Logistical Issues
4QFY11 PAT ~12% below estimate — JSPL’s 4QFY11 PAT at Rs10.1bn (up 4% YoY,)
was 12% below CIRA est. of Rs11.4bn due to lower-than-expected pellet sales, slightly
higher raw material costs (5% above est.) and higher effective tax rates. Steel
realizations increased ~8-10% QoQ and were in line with CIRA estimates.
Operationally, in-line quarter — Metallics (DRI&Pig Iron), steel and pellet production
were broadly in line with estimates. The company produced 867k tons of pellets but
could sell only ~225k tons due to logistical issues which have been subsequently
resolved.
Jindal Power reported in line numbers — Jindal Power’s 4QFY11 PAT at Rs4.96bn
was in line with CIRA estimate of Rs4.94bn. Operating efficiencies were healthy with
PLF of 100.8%. Implied realization (assuming 8% auxiliary consumption) at
Rs4.13/kwh was ~6% below CIRA estimate of Rs4.4/kwh.
Angul project execution continues — JSPL has commissioned Unit 1 (135MW) of
810MW (6x135MW) power project at Angul in March 2011. The company has yet to
receive any communication from state government regarding environmental clearance
issues and execution on the ground is continuing.
Rocklands Richfields acquisition — JSPL has announced on-market takeover offer
for Rocklands Richfields Limited. The offer values Rockland's total equity at
approximately AU$88mn. JSPL currently holds a 14.46% interest in Rockland.
Rockland has rights to develop coking coal tenements in Australia and posted a
consolidated net loss after tax of AU$13.3m for the year ending 30 June 2010.
Maintain Hold — JSPL’s integrated operations and access to captive raw material give
the company an edge over peers. However, rich valuations limit upside from current
levels. We will get back with more details post the results conference call.
Jindal Steel and Power
Company description
Jindal Steel and Power (JSPL) came into existence in 1998 after the demerger of
Jindal Strips Limited. Over the past 10 years, JSPL has transformed itself from
being a producer of sponge iron to a diversified conglomerate having presence in
steel manufacturing, power generation and mining a wide range of minerals ranging
from iron ore and coal to diamonds and limestone. The company also has presence
in oil, gas and infrastructure sectors.
JSPL owns ~180m tonnes of domestic iron ore, ~2.56bn tonnes of domestic thermal
coal and ~20bn tonnes of iron ore in Bolivia. The company has ~2.4mtpa steel and
~1622MW power capacity currently operational.
JSPL is a part of O.P. Jindal Group and has ~15,000 employees
Investment strategy
JSPL, with its strong execution, cash generation and balance sheet management,
has emerged as one of the most integrated steel and power companies in India.
Access to captive raw material supplies for steel and power, flexibility to vary steel
product mix,10 years of timely execution without dilution and low cost of power
generation give JSPL an edge over its peers in both power and steel.
JSPL’s stock is up 5.2x/13x in past 2/5 yrs (2.1x/2.2x for Sensex). Sharp
outperformance over past2/5 years factors in almost all positives about the
company. Our target price factors in 5,380MW capacity in Jindal Power, 2.4mntpa
steel capacity, ~2mntpa surplus pellet capacity, 1,350MW captive power in JSPL,
1.5mntpa iron ore mining in Bolivia and Shadeed acquisition.
Valuation
We value JSPL's power business using a discounted cash flow approach as power
plants generate largely predictable cash flows for fixed time periods. While applying
DCF one can choose free cash flow to the firm (FCF) or free cash flow to equity
(FCFE). We prefer FCFE as individual projects are highly geared and gearing
changes as debt is rapidly paid off.
We value JSPL's steel business at 7x FY12 EV/EBITDA - at a discount to Tata Steel
India's target EV/EBITDA multiple of 7.5x. We use a discount given (1) Tata Steel
India's scale of operations at 6.8mtpa vs 2.4mtpa for JSPL, (2) Tata Steel India's
100% captive iron ore vs. 50-60% for JSPL and 3) Tata Steel's product mix being
largely high end relative to JSPL. Both companies have ~55-60% of captive coal.
Tata Steel has 55-60% coking coal. JSPL has 100% thermal coal, but no coking
coal.
If we assume JSPL executes all its power projects in line with our assumptions, we
arrive at a value of Rs676/share. This includes Rs204 for the steel business, Rs19
for Bolivia, Rs325 for Jindal Power, Rs86 for 1,350MW captive power plants and
Rs40 for excess power purchased from JPL at fixed prices. At our target price the
stock would trade at a P/E of 11x and EV/EBITDA of 9.2x FY12E.
Risks
Our quantitative risk-rating system, which tracks 260-day historical share price
volatility, assigns a Low Risk rating to JSPL.
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