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JSP reported mute 4Q and FY11 results with EBITDA of Rs17.3bn and Rs63.8bn respectively.
Results were impacted by consolidation of Oman Shadeed operations which has a higher cost of
production. With strong drivers across steel and power businesses in place, we maintain Buy with
target price of Rs820.
4QFY11 results muted
4QFY11 consolidated net revenues were at Rs38.5bn (+21% yoy and +22% qoq) driven by
higher steel and pellet volumes as well as realizations. Production of steel products was 622kt
(+27% yoy and +7% qoq) while pellet production increased to 866kt (207kt in 4QFY10) with
the new 4.5mt pellet capacity ramping up. Steel products sales were at 531kt (+6% yoy and
+6% qoq) while pellet sales were at 224kt, up from 11.8kt in 4QFY10. EBITDA margin
declined 500bps sequentially to 44.8% due to higher cost of operations at Oman Shadeed.
EBITDA was Rs17.3bn (+18% yoy and +8% qoq) versus our estimate of Rs19.3bn. Net profit
was Rs10.0bn (+4%yoy and +5% qoq). Revenues from Jindal Power (JPL), were at Rs8.3bn
(+5% yoy and +4% qoq) while net profit was Rs4.9bn (-22% yoy and +2% qoq). The 1000MW
Tamnar I plant operated at a PLF of 100.8% with average realized tariff at Rs3.8/unit for the
quarter.
FY11 results summary
FY11 net revenues were Rs130.9bn (+19% yoy), EBITDA was Rs63.8bn (+10% yoy) and net
profit was Rs38.0bn (+5% yoy). While steel production was 2.2mt, pellet production was at
2.7mt. Steel products sales were 0.53mt while pellet sales were at 0.22mt. Jindal Power
contributed Rs33.4bn (-18% yoy) to revenues and Rs20.0bn to net profit, decreasing 14% yoy
due to the decline in merchant tariffs, despite higher PLF's. (98.1% in FY11 vs. 93% in FY10).
Volumes from steel, power and surplus pellet sales to drive FY12 earnings
While steel production was 2.2mt for FY11, management highlighted during the earnings call
that they expect to achieve production of 2.5mt of steel for FY12 from their Raigarh
operations. The 1.5mt Oman Shadeed will also add full year volumes (~1.2mt) as opposed to
just one quarter in FY11. Management expects to operate the 4.5mt pellet plant at close to full
capacity and sell 2-2.5mt of surplus pellets with the rest consumed captively. Out of the 10
units of the 1350MW CPP, 2 units of 135MW each were already commissioned in 3QFY11
and the 3rd unit has now been commissioned in March. Management highlighted that being a
middling based plant, stabilization of the first unit did take time, but expects the remaining
units to be progressively commissioned by end of FY12. (1 unit every second month). Having
fully stabilized, the first unit is now operating at 95% PLF. Power generated from these units
will be available for external sales. We have modeled 3mt of total steel volumes and pellet
sales of 1.1mt for FY12F.
Greenfield expansion at Angul on schedule
The 1.5mt plate mill at Angul, Orissa is scheduled to be commissioned by 3QFY12.
Management reiterated that the 2mt DRI plant will also be ready by end-FY12 and will add to
volumes in FY13. Considering the possibility of delays, we have not currently factored in any
incremental volumes from Angul in FY13F.
Management expects merchant tariff's to be ~Rs4/unit
Merchant tariff realized at 1000MW Tamnar I was Rs4.4/unit in 4Q and Rs4.5/unit for FY11.
(~70% of power generated at the plant is sold on a merchant basis). Management expects
merchant tariffs to be around Rs4/unit for FY12. With coal production constrained at Coal
India and power plants across the board resorting to imports, cost of power generation is
expected to increase substantially with increase in global energy costs. Management expects
this to support tariffs even as JSP enjoys captive coal resources. Power continues to be sold
using short term contracts and sold to a large number of customers (average customer buys
about 100-150MW). This also reduces the default risk for the company even as the SEB's
continue to be financially burdened.
Expects to start shipping Bolivian iron ore soon
Management noted that they expect to start shipping iron ore from Bolivia soon. Management
does not see an issue in scaling up volumes once the infrastructure and logistics are in place,
which are the current focus areas. We have currently modeled 0.5mt of iron ore volumes for
FY12/13 and a quicker ramp-up would be positive.
Commissioning of 4*600MW Tamnar II pushed back by 1 quarter
The commissioning for the first unit of the 4*600MW Tamnar II plant has been pushed back
by a quarter to March 2012, with the remaining units to be progressively commissioned with
each succeeding quarter. Coal linkage for 1200MW has already been finalized while linkage
for remaining 1200MW has been applied for. Management noted that site work on these units
can be started only after coal source has been finalized and formal clearance from MoEF
obtained.
Capex guidance
JSP plans to spend Rs40bn and Rs60bn towards steel capex during FY12 and FY13
respectively. For FY12, capex towards remaining CPP units is expected to be ~Rs40bn while
capex at JPL towards 2400MW Tamnar II is expected to be Rs70bn.
Takeover of Rocklands Richfield - no near-term impact
JSP has made a takeover offer to buy all outstanding shares of Australian coal-mining
company, Rocklands Richfield at A$25 cents valuing the company at A$88mn. We note that
JSP already owns 14.46% in the company. The company has an operating 480kt coking plant
in China and reported revenues of A$79mn and a net loss of A$13.3mn for the June ended
FY10. The main attraction for JSP is the coking coal resources of the company. 700mn
tonnes of resources of bituminous coal have been identified in the Rocklands coal project.
Considerable exploration work is pending along with conversion to proven reserves before
value can be attributed. We also note that JSP is largely self-sufficient in captive resources
with most of their expansion also based on thermal coal-based DRI plants. With an equity
value of A$88mn, (less than 1% of JSP's market capitalization), the investment is anyway not
significant.
To decide on JPL IPO soon
Having filed the DRHP last year, the window for coming out with an IPO for JPL expires on 27
May 2011 and management expects to "take a view" on the same shortly. Management did
reiterate their intention to list JPL to raise equity for its power expansion projects including the
2400MW Tamnar II as well as the 1980MW Jharkhand CPP's.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSP reported mute 4Q and FY11 results with EBITDA of Rs17.3bn and Rs63.8bn respectively.
Results were impacted by consolidation of Oman Shadeed operations which has a higher cost of
production. With strong drivers across steel and power businesses in place, we maintain Buy with
target price of Rs820.
4QFY11 results muted
4QFY11 consolidated net revenues were at Rs38.5bn (+21% yoy and +22% qoq) driven by
higher steel and pellet volumes as well as realizations. Production of steel products was 622kt
(+27% yoy and +7% qoq) while pellet production increased to 866kt (207kt in 4QFY10) with
the new 4.5mt pellet capacity ramping up. Steel products sales were at 531kt (+6% yoy and
+6% qoq) while pellet sales were at 224kt, up from 11.8kt in 4QFY10. EBITDA margin
declined 500bps sequentially to 44.8% due to higher cost of operations at Oman Shadeed.
EBITDA was Rs17.3bn (+18% yoy and +8% qoq) versus our estimate of Rs19.3bn. Net profit
was Rs10.0bn (+4%yoy and +5% qoq). Revenues from Jindal Power (JPL), were at Rs8.3bn
(+5% yoy and +4% qoq) while net profit was Rs4.9bn (-22% yoy and +2% qoq). The 1000MW
Tamnar I plant operated at a PLF of 100.8% with average realized tariff at Rs3.8/unit for the
quarter.
FY11 results summary
FY11 net revenues were Rs130.9bn (+19% yoy), EBITDA was Rs63.8bn (+10% yoy) and net
profit was Rs38.0bn (+5% yoy). While steel production was 2.2mt, pellet production was at
2.7mt. Steel products sales were 0.53mt while pellet sales were at 0.22mt. Jindal Power
contributed Rs33.4bn (-18% yoy) to revenues and Rs20.0bn to net profit, decreasing 14% yoy
due to the decline in merchant tariffs, despite higher PLF's. (98.1% in FY11 vs. 93% in FY10).
Volumes from steel, power and surplus pellet sales to drive FY12 earnings
While steel production was 2.2mt for FY11, management highlighted during the earnings call
that they expect to achieve production of 2.5mt of steel for FY12 from their Raigarh
operations. The 1.5mt Oman Shadeed will also add full year volumes (~1.2mt) as opposed to
just one quarter in FY11. Management expects to operate the 4.5mt pellet plant at close to full
capacity and sell 2-2.5mt of surplus pellets with the rest consumed captively. Out of the 10
units of the 1350MW CPP, 2 units of 135MW each were already commissioned in 3QFY11
and the 3rd unit has now been commissioned in March. Management highlighted that being a
middling based plant, stabilization of the first unit did take time, but expects the remaining
units to be progressively commissioned by end of FY12. (1 unit every second month). Having
fully stabilized, the first unit is now operating at 95% PLF. Power generated from these units
will be available for external sales. We have modeled 3mt of total steel volumes and pellet
sales of 1.1mt for FY12F.
Greenfield expansion at Angul on schedule
The 1.5mt plate mill at Angul, Orissa is scheduled to be commissioned by 3QFY12.
Management reiterated that the 2mt DRI plant will also be ready by end-FY12 and will add to
volumes in FY13. Considering the possibility of delays, we have not currently factored in any
incremental volumes from Angul in FY13F.
Management expects merchant tariff's to be ~Rs4/unit
Merchant tariff realized at 1000MW Tamnar I was Rs4.4/unit in 4Q and Rs4.5/unit for FY11.
(~70% of power generated at the plant is sold on a merchant basis). Management expects
merchant tariffs to be around Rs4/unit for FY12. With coal production constrained at Coal
India and power plants across the board resorting to imports, cost of power generation is
expected to increase substantially with increase in global energy costs. Management expects
this to support tariffs even as JSP enjoys captive coal resources. Power continues to be sold
using short term contracts and sold to a large number of customers (average customer buys
about 100-150MW). This also reduces the default risk for the company even as the SEB's
continue to be financially burdened.
Expects to start shipping Bolivian iron ore soon
Management noted that they expect to start shipping iron ore from Bolivia soon. Management
does not see an issue in scaling up volumes once the infrastructure and logistics are in place,
which are the current focus areas. We have currently modeled 0.5mt of iron ore volumes for
FY12/13 and a quicker ramp-up would be positive.
Commissioning of 4*600MW Tamnar II pushed back by 1 quarter
The commissioning for the first unit of the 4*600MW Tamnar II plant has been pushed back
by a quarter to March 2012, with the remaining units to be progressively commissioned with
each succeeding quarter. Coal linkage for 1200MW has already been finalized while linkage
for remaining 1200MW has been applied for. Management noted that site work on these units
can be started only after coal source has been finalized and formal clearance from MoEF
obtained.
Capex guidance
JSP plans to spend Rs40bn and Rs60bn towards steel capex during FY12 and FY13
respectively. For FY12, capex towards remaining CPP units is expected to be ~Rs40bn while
capex at JPL towards 2400MW Tamnar II is expected to be Rs70bn.
Takeover of Rocklands Richfield - no near-term impact
JSP has made a takeover offer to buy all outstanding shares of Australian coal-mining
company, Rocklands Richfield at A$25 cents valuing the company at A$88mn. We note that
JSP already owns 14.46% in the company. The company has an operating 480kt coking plant
in China and reported revenues of A$79mn and a net loss of A$13.3mn for the June ended
FY10. The main attraction for JSP is the coking coal resources of the company. 700mn
tonnes of resources of bituminous coal have been identified in the Rocklands coal project.
Considerable exploration work is pending along with conversion to proven reserves before
value can be attributed. We also note that JSP is largely self-sufficient in captive resources
with most of their expansion also based on thermal coal-based DRI plants. With an equity
value of A$88mn, (less than 1% of JSP's market capitalization), the investment is anyway not
significant.
To decide on JPL IPO soon
Having filed the DRHP last year, the window for coming out with an IPO for JPL expires on 27
May 2011 and management expects to "take a view" on the same shortly. Management did
reiterate their intention to list JPL to raise equity for its power expansion projects including the
2400MW Tamnar II as well as the 1980MW Jharkhand CPP's.
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