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Jindal Saw Limited
4Q results weak; order book healthy
Event
JSAW reported 4Q FY11 net sales and profit of Rs11.6bn and Rs802m,
respectively. Results were below our expectations due to a lower margin and
a marginal miss in volume. The blended EBITDA margin was Rs8,212/tonne
in 4Q. Reaffirm our Outperform recommendation, but cut our TP to Rs245.
Impact
Volumes marginally missed expectations. During 4Q, SAW pipes volume
dropped by 13.5% to 104k tonnes (35k tonnes of HSAW and 69k tonnes of
LSAW) due to a shipment delay of ~20kt. Overall, JSAW sold 204k tonnes of
pipes in 4Q and 725k tonnes in FY11. We have reduced our volume estimate
for FY12 to 970k tonnes from 1.1m tonnes.
Blended EBITDA was lower due to mix change. Blended EBITDA margin
was ~US$185/tonne in 4Q, affected by execution of 35k tonnes of low margin
HSAW pipes. Higher coking coal prices (above US$325/t) affected margins,
especially in ductile iron pipes. Margins were US$325/t for seamless pipes,
US$200/t for LSAW, US$30/t for HSAW and US$180/t for DI.
JSAW’s current order book is above US$1bn. The company has an order
book of US$1bn, which it expects to execute by March 2012. The order book
includes LSAW pipes (390k tonnes), HSAW pipes (190k tonnes), DI pipes
(100k tonnes) and seamless pipes (40k tonnes). 55% of the order book is
from the export markets. We estimate the average EBITDA on its current
order book to be ~US$175/tonne.
Expansion projects on track. The company’s current expansion plans for a
new DI pipe facility (US$75m, Sep-2011), Mundra DI plant expansion
(US$60m, Sep-2011) and a drill pipe facility in the US (trial to start in June-
2011) are on track.
Iron ore mines to start in 1Q CY12, provide 30% valuation upside. JSAW
plans to invest ~US$70m on mine development and to set up a beneficiation
and pelletization plant. Based on our iron ore price forecast, we believe these
resources have a value of US$375m (using NPV methodology). This
translates to a value of US$2/t, which is significantly lower than that of other
listed iron ore mine companies.
Earnings and target price revision
We cut our FY12E earnings by 25% on lower volume and margin
assumptions. We roll forward our model and cut our TP to Rs245 from Rs300.
Price catalyst
12-month price target: Rs245.00 based on a Sum of Parts methodology.
Catalyst: New order inflow and start of production at iron ore mines.
Action and recommendation
Outperform maintained. JSAW is our preferred pick in the pipe space, given
its healthy order book and multiple triggers. We believe the start of iron ore
mines in 1Q CY11 will provide a significant boost to its earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jindal Saw Limited
4Q results weak; order book healthy
Event
JSAW reported 4Q FY11 net sales and profit of Rs11.6bn and Rs802m,
respectively. Results were below our expectations due to a lower margin and
a marginal miss in volume. The blended EBITDA margin was Rs8,212/tonne
in 4Q. Reaffirm our Outperform recommendation, but cut our TP to Rs245.
Impact
Volumes marginally missed expectations. During 4Q, SAW pipes volume
dropped by 13.5% to 104k tonnes (35k tonnes of HSAW and 69k tonnes of
LSAW) due to a shipment delay of ~20kt. Overall, JSAW sold 204k tonnes of
pipes in 4Q and 725k tonnes in FY11. We have reduced our volume estimate
for FY12 to 970k tonnes from 1.1m tonnes.
Blended EBITDA was lower due to mix change. Blended EBITDA margin
was ~US$185/tonne in 4Q, affected by execution of 35k tonnes of low margin
HSAW pipes. Higher coking coal prices (above US$325/t) affected margins,
especially in ductile iron pipes. Margins were US$325/t for seamless pipes,
US$200/t for LSAW, US$30/t for HSAW and US$180/t for DI.
JSAW’s current order book is above US$1bn. The company has an order
book of US$1bn, which it expects to execute by March 2012. The order book
includes LSAW pipes (390k tonnes), HSAW pipes (190k tonnes), DI pipes
(100k tonnes) and seamless pipes (40k tonnes). 55% of the order book is
from the export markets. We estimate the average EBITDA on its current
order book to be ~US$175/tonne.
Expansion projects on track. The company’s current expansion plans for a
new DI pipe facility (US$75m, Sep-2011), Mundra DI plant expansion
(US$60m, Sep-2011) and a drill pipe facility in the US (trial to start in June-
2011) are on track.
Iron ore mines to start in 1Q CY12, provide 30% valuation upside. JSAW
plans to invest ~US$70m on mine development and to set up a beneficiation
and pelletization plant. Based on our iron ore price forecast, we believe these
resources have a value of US$375m (using NPV methodology). This
translates to a value of US$2/t, which is significantly lower than that of other
listed iron ore mine companies.
Earnings and target price revision
We cut our FY12E earnings by 25% on lower volume and margin
assumptions. We roll forward our model and cut our TP to Rs245 from Rs300.
Price catalyst
12-month price target: Rs245.00 based on a Sum of Parts methodology.
Catalyst: New order inflow and start of production at iron ore mines.
Action and recommendation
Outperform maintained. JSAW is our preferred pick in the pipe space, given
its healthy order book and multiple triggers. We believe the start of iron ore
mines in 1Q CY11 will provide a significant boost to its earnings.
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