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UBS Investment Research
Jindal Saw
R esults miss; mine start to improve outlook
Weak Q4FY11 results on GAIL order, higher input costs
Jindal Saw (JSL)’s Q4FY11 results at Rs0.8bn PAT were a miss on both UBS and
consensus estimates. Reasons for weak numbers were 1) execution of low margin
GAIL order, 2) higher costs (welding electrodes, coating material, freight on some
shipments, 10-12% salary inflation and arrears) and weak ductile iron pipe
profitability due to no pricing power and higher coking coal/iron ore prices.
Management lowers FY12 profitability outlook; we trim estimates/SOTP
Management guides lower H1FY12 profitability, as low margin GAIL order is
executed, and DI margins will be low. FY12 pipes sales guidance is 1.1 mn MT.
FY12 pipe revenues guidance is Rs65bn and 17-18% EBITDA margins, lower than
earlier guidance of 20% margins. We trim FY12/13 estimates by 17.4%/8.1%,
respectively and lower our SOTP to Rs283/share from earlier Rs305/share.
Long term outlook positive on mine, DI plant; buy on weakness
While, our long term outlook remains positive because of 1) mine commissioning,
2) DI capacity in Abu Dhabi (better profitability and low entry barriers), 3) upsides
from Jindal ITF, H1FY12 results will be muted. While we believe, there are
limited triggers for the stock over the next 2 quarters and may keep stock
performance muted, investors could view the weakness as a buying opportunity.
Valuation: maintain Buy and reduce PT to Rs283
We reiterate our Buy rating and revise our price target of Rs283, based on a DCF
value of Rs235/share on the core business and Rs48/share of investment value.
Key risks are MTM of US$142m and potential net worth reduction.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Jindal Saw
R esults miss; mine start to improve outlook
Weak Q4FY11 results on GAIL order, higher input costs
Jindal Saw (JSL)’s Q4FY11 results at Rs0.8bn PAT were a miss on both UBS and
consensus estimates. Reasons for weak numbers were 1) execution of low margin
GAIL order, 2) higher costs (welding electrodes, coating material, freight on some
shipments, 10-12% salary inflation and arrears) and weak ductile iron pipe
profitability due to no pricing power and higher coking coal/iron ore prices.
Management lowers FY12 profitability outlook; we trim estimates/SOTP
Management guides lower H1FY12 profitability, as low margin GAIL order is
executed, and DI margins will be low. FY12 pipes sales guidance is 1.1 mn MT.
FY12 pipe revenues guidance is Rs65bn and 17-18% EBITDA margins, lower than
earlier guidance of 20% margins. We trim FY12/13 estimates by 17.4%/8.1%,
respectively and lower our SOTP to Rs283/share from earlier Rs305/share.
Long term outlook positive on mine, DI plant; buy on weakness
While, our long term outlook remains positive because of 1) mine commissioning,
2) DI capacity in Abu Dhabi (better profitability and low entry barriers), 3) upsides
from Jindal ITF, H1FY12 results will be muted. While we believe, there are
limited triggers for the stock over the next 2 quarters and may keep stock
performance muted, investors could view the weakness as a buying opportunity.
Valuation: maintain Buy and reduce PT to Rs283
We reiterate our Buy rating and revise our price target of Rs283, based on a DCF
value of Rs235/share on the core business and Rs48/share of investment value.
Key risks are MTM of US$142m and potential net worth reduction.
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