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We see JSP as the only Indian steel company we cover that we expect to deliver strong FY12
earnings growth on: 1) 2MT pellets; 2) its recently acquired 1.5mt DRI plant in Oman; and 3)
810MW of additional power capacity. 1QFY12 should set the pace for strong full-year earnings.
Maintain Buy with new TP of Rs800.
Standing apart from the crowd
We believe Jindal Steel & Power (JSP) is the only company in our Indian steel coverage universe
that we expect will deliver strong FY12 earnings growth. We see this growth being driven by its:
1) timely expansion into pellet making; 2) recent DRI plant acquisition in Oman; and 3) 810MW of
middling-based power additional capacity. This is in sharp contrast to peers such as Tata Steel,
Steel Authority of India and JSW Steel, which we expect to report FY12 earnings growth of 0%, -
40% and 8%, respectively.
1Q earnings to set the pace
We expect JSP to report steady 1QFY12 earnings driven by strong pellet sales from its newly
commissioned 5mt pellet plant, strong contribution from its Oman operations and high PLF from
its 1000MW merchant power plant. Of note, operations are stabilising at its 510MW captive power
plant, which we expect to contribute from next quarter. Meanwhile, we see the company’s core
3mt steel business suffering earnings pressure due to: 1) a sharp surge in coking coal prices; and
2) weak local steel demand. However, we believe that higher raw material costs will have less
impact on JSP than on its peers under our coverage as JSP has pioneered the coal- and gasbased DRI steel making process, which makes it less dependent on imported coking coal.
Maintain Buy, but lower TP to Rs800 from Rs820
We cut our FY12-13F EBITDA by 5% and 4%, respectively, as we raise our coking coal price
assumptions for the same period to US$290/tonne and US$270/tonne (from US$220/tonne). As a
result, we lower our TP to Rs800. We value JSP on an SoTP basis, with steel accounting for
about 51% of our valuation and the power business rest. In our view, the company’s major
earnings drivers for the next one to two years will be the timely: 1) commissioning of the 2mt coalgasification based steel plant at Angul, Odisha; 2) launch of the 2,400MW power plant at Raigarh;
and 3) development of overseas mining assets, which are not reflected in our earnings forecasts
at this stage.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We see JSP as the only Indian steel company we cover that we expect to deliver strong FY12
earnings growth on: 1) 2MT pellets; 2) its recently acquired 1.5mt DRI plant in Oman; and 3)
810MW of additional power capacity. 1QFY12 should set the pace for strong full-year earnings.
Maintain Buy with new TP of Rs800.
Standing apart from the crowd
We believe Jindal Steel & Power (JSP) is the only company in our Indian steel coverage universe
that we expect will deliver strong FY12 earnings growth. We see this growth being driven by its:
1) timely expansion into pellet making; 2) recent DRI plant acquisition in Oman; and 3) 810MW of
middling-based power additional capacity. This is in sharp contrast to peers such as Tata Steel,
Steel Authority of India and JSW Steel, which we expect to report FY12 earnings growth of 0%, -
40% and 8%, respectively.
1Q earnings to set the pace
We expect JSP to report steady 1QFY12 earnings driven by strong pellet sales from its newly
commissioned 5mt pellet plant, strong contribution from its Oman operations and high PLF from
its 1000MW merchant power plant. Of note, operations are stabilising at its 510MW captive power
plant, which we expect to contribute from next quarter. Meanwhile, we see the company’s core
3mt steel business suffering earnings pressure due to: 1) a sharp surge in coking coal prices; and
2) weak local steel demand. However, we believe that higher raw material costs will have less
impact on JSP than on its peers under our coverage as JSP has pioneered the coal- and gasbased DRI steel making process, which makes it less dependent on imported coking coal.
Maintain Buy, but lower TP to Rs800 from Rs820
We cut our FY12-13F EBITDA by 5% and 4%, respectively, as we raise our coking coal price
assumptions for the same period to US$290/tonne and US$270/tonne (from US$220/tonne). As a
result, we lower our TP to Rs800. We value JSP on an SoTP basis, with steel accounting for
about 51% of our valuation and the power business rest. In our view, the company’s major
earnings drivers for the next one to two years will be the timely: 1) commissioning of the 2mt coalgasification based steel plant at Angul, Odisha; 2) launch of the 2,400MW power plant at Raigarh;
and 3) development of overseas mining assets, which are not reflected in our earnings forecasts
at this stage.
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