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Project delays
Project delays are beginning to blunt JSPL’s strong volume growth story.
We now expect the 1,350MW captive power capacity in parent company
to come up by 1QFY13 (Dec-11 previously). The Angul steel plant also
stands delayed to Oct-12 (Mar-12 previously). Factoring in this, we cut
FY12 EPS by 9% and FY13 EPS by 16%. Our 12m sum-of-parts target
price drops to Rs700 – just 3% upside – and we lower our rating one
notch to O-PF from BUY. We remain believers in an eventual value of
Rs800+ for JSPL, but now believe that this value is more likely to get
realized in two years and not in one year.
Power – more delays in captives and Tamnar II project
JSPL has commissioned only three units of 135MW so far (two at Raigarh and
one at Angul) of the proposed 1,350MW (10 units) which were supposed to
get fully commissioned by June 2011. While some of the delays have been
due to hold-up in getting environmental clearances, some of it is also
attributable to the fact that these units are taking longer time to stabilize.
The work on site for Tamnar II project (2,400MW) which is being developed
by Jindal Power (96.5% subsidiary) is yet to start as the final go ahead from
MoEF is still pending.
Steel - Angul plant delayed to mid-FY13
JSPL’s Greenfield steel plant at Angul is likely to come up only by Oct-12
versus our earlier expectation of Mar-12. The plate mill could come up earlier
but the DRI units and steel melting shop will come up only by Oct-12. JSPL
can use slabs from Raigarh to make plates at Angul in 1HFY13 but we believe
that quantities will be low given that Raigarh does not have much surplus
steel. Given ramp-up time, the volume benefit from Angul will show mainly in
FY14 and FY15, and less so in FY13. However, once the Angul plant comes up,
we see a period of strong volume growth and improving margins in steel
business since the Angul plant will use less thermal coal and no coking coal
due to usage of coal gasification technology to make DRI and will also have a
better product-mix than Raigarh.
Cutting FY12-13 EPS 9-16%; downgrade to O-PF
We cut FY12-13 EPS by 9-16% factoring in the project delays in power and
steel businesses. On a 12m view, we can justify only Rs700 (Rs442/sh for
power business and Rs258/sh for steel business) for JSPL. On a two-year
view, stock could cross Rs800 but believe that this value will get achieved
only when visibility of timely commissioning improves. We lower our
recommendation one notch to O-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Project delays
Project delays are beginning to blunt JSPL’s strong volume growth story.
We now expect the 1,350MW captive power capacity in parent company
to come up by 1QFY13 (Dec-11 previously). The Angul steel plant also
stands delayed to Oct-12 (Mar-12 previously). Factoring in this, we cut
FY12 EPS by 9% and FY13 EPS by 16%. Our 12m sum-of-parts target
price drops to Rs700 – just 3% upside – and we lower our rating one
notch to O-PF from BUY. We remain believers in an eventual value of
Rs800+ for JSPL, but now believe that this value is more likely to get
realized in two years and not in one year.
Power – more delays in captives and Tamnar II project
JSPL has commissioned only three units of 135MW so far (two at Raigarh and
one at Angul) of the proposed 1,350MW (10 units) which were supposed to
get fully commissioned by June 2011. While some of the delays have been
due to hold-up in getting environmental clearances, some of it is also
attributable to the fact that these units are taking longer time to stabilize.
The work on site for Tamnar II project (2,400MW) which is being developed
by Jindal Power (96.5% subsidiary) is yet to start as the final go ahead from
MoEF is still pending.
Steel - Angul plant delayed to mid-FY13
JSPL’s Greenfield steel plant at Angul is likely to come up only by Oct-12
versus our earlier expectation of Mar-12. The plate mill could come up earlier
but the DRI units and steel melting shop will come up only by Oct-12. JSPL
can use slabs from Raigarh to make plates at Angul in 1HFY13 but we believe
that quantities will be low given that Raigarh does not have much surplus
steel. Given ramp-up time, the volume benefit from Angul will show mainly in
FY14 and FY15, and less so in FY13. However, once the Angul plant comes up,
we see a period of strong volume growth and improving margins in steel
business since the Angul plant will use less thermal coal and no coking coal
due to usage of coal gasification technology to make DRI and will also have a
better product-mix than Raigarh.
Cutting FY12-13 EPS 9-16%; downgrade to O-PF
We cut FY12-13 EPS by 9-16% factoring in the project delays in power and
steel businesses. On a 12m view, we can justify only Rs700 (Rs442/sh for
power business and Rs258/sh for steel business) for JSPL. On a two-year
view, stock could cross Rs800 but believe that this value will get achieved
only when visibility of timely commissioning improves. We lower our
recommendation one notch to O-PF.
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