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UBS Investment Research
Jindal Steel & Power
S teel surprises positively; power in line
Standalone results above UBS-e and consensus estimates;
Standalone Pre-ex PAT of Rs5.1bn (+7%QoQ, +6%YoY) and EBITDA at
Rs10.9bn (+13%QoQ, +27%YoY) was higher than our estimate of
Rs3.9bn/Rs8.6bn driven by higher Net Sales. Net Sales of Rs33.3bn (+32%QoQ,
+45%YoY) was a surprise primarily driven by higher steel and pellet volumes.
Jindal Power’s performance is in-line with estimates
In 2Q, Jindal Power (the 1,000MW power plant) reported PAT of Rs4.1bn. The
PLF (92% vs. 98% in FY11) and per unit realisation (~Rs3.50/unit vs. Rs4.25/unit
in FY11) are lower largely due to seasonal effect. On a consolidated basis, JSPL
has reported sales of Rs44.2bn (up 44% YoY) and PAT of Rs9.3bn (up 6% YoY).
In-line with standalone numbers, consolidated results are better than UBS-e.
Integrated business model key strength but execution risks
We think the operational synergy derived from JSPL’s integrated business model is
a key strength. However, we think JSPL’s capacity expansion faces significant
execution challenges in both steel and power businesses. Please refer to our
initiation report Risks outweigh strong fundamentals dated 7th October 2011. JSPL
is hosting a conference call tomorrow. We will update with details post the call.
Valuation: sum-of-the-parts-based price target of Rs470
We value JSPL on SoTP (power contributes Rs285 and steel Rs189). We use
EV/EBITDA to value JSPL’s domestic steel business and DCF for power. We
believe a declining ROCE (from 41% in FY10 to 21% in FY14E) and ROE (from
45% in FY10 to 24% in FY14E) trend means a premium valuation is unwarranted.
Standalone results
Standalone Pre-ex PAT of Rs5.1bn (+7%QoQ, +6%YoY) was higher than
our estimate of Rs3.9bn driven by higher Net Sales. Consensus PAT estimate
was Rs4.5bn.
EBITDA at Rs10.9bn (+13%QoQ, +27%YoY) was higher than our estimate
of Rs8.6bn. Consensus EBITDA estimate was Rs9.4bn.
Net Sales of Rs33.3bn (+32%QoQ, +45%YoY) was a surprise primarily
driven by higher steel volumes and higher pellet volumes. Consensus Net
Sales was Rs28.2bn.
— Volumes were higher than estimated due to inventory liquidation.
— However, JSPL’s cost was also higher in the quarter as JSPL reduced
sponge iron ore production in the quarter by 7% (c24kt) and used HBI
(Hot Briquetted Iron from Shahdeed Iron & Steel Company). JSPL’s
sponge iron cost per tonne (cRs7,000/t) is significantly lower than HBI
cost of Rs21,500/t (landed cost).
— Hence, JSPL’s EBITDA margins have declined to 32.6% from 38.1% in
Q1FY12.
— JSPL’s standalone iron & steel EBIT has increased 27% QoQ to Rs9.7bn
(+Rs2bn QoQ) whereas Consolidated Iron & Steel EBIT has increased
33% QoQ to Rs11.4bn (+cRs3bn) due to profitability in Shahdeed Iron &
Steel division.
There was an exceptional loss of Rs1.48bn in Q2FY12 on account of writeoff
of investments in overseas mining & exploration activities
Jindal Steel & Power
Jindal Steel and Power, an integrated steel producer, is one of India's
major steel and power producer, with a significant presence in mining,
power generation and infrastructure. Its products include a range of
long products and flat products, catering to the various needs in the
steel market.
Statement of Risk
Key risks to our rating include, 1) faster than expected execution, 2)
Strong pick up in merchant tariffs, and, 3) Strong recovery in steel
prices driven by western demand recovery, 4) Better than expected
steel demand growth in India. Key downside risks to the business are,
1) delay in the execution, 2) lower than expected tariffs, 3) adverse
change in regulations, 4) lower than expected PLFs, and, 5)
availability of quality management and personnel, 6) delay in attaining
environmental/other clearances for the mines.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Jindal Steel & Power
S teel surprises positively; power in line
Standalone results above UBS-e and consensus estimates;
Standalone Pre-ex PAT of Rs5.1bn (+7%QoQ, +6%YoY) and EBITDA at
Rs10.9bn (+13%QoQ, +27%YoY) was higher than our estimate of
Rs3.9bn/Rs8.6bn driven by higher Net Sales. Net Sales of Rs33.3bn (+32%QoQ,
+45%YoY) was a surprise primarily driven by higher steel and pellet volumes.
Jindal Power’s performance is in-line with estimates
In 2Q, Jindal Power (the 1,000MW power plant) reported PAT of Rs4.1bn. The
PLF (92% vs. 98% in FY11) and per unit realisation (~Rs3.50/unit vs. Rs4.25/unit
in FY11) are lower largely due to seasonal effect. On a consolidated basis, JSPL
has reported sales of Rs44.2bn (up 44% YoY) and PAT of Rs9.3bn (up 6% YoY).
In-line with standalone numbers, consolidated results are better than UBS-e.
Integrated business model key strength but execution risks
We think the operational synergy derived from JSPL’s integrated business model is
a key strength. However, we think JSPL’s capacity expansion faces significant
execution challenges in both steel and power businesses. Please refer to our
initiation report Risks outweigh strong fundamentals dated 7th October 2011. JSPL
is hosting a conference call tomorrow. We will update with details post the call.
Valuation: sum-of-the-parts-based price target of Rs470
We value JSPL on SoTP (power contributes Rs285 and steel Rs189). We use
EV/EBITDA to value JSPL’s domestic steel business and DCF for power. We
believe a declining ROCE (from 41% in FY10 to 21% in FY14E) and ROE (from
45% in FY10 to 24% in FY14E) trend means a premium valuation is unwarranted.
Standalone results
Standalone Pre-ex PAT of Rs5.1bn (+7%QoQ, +6%YoY) was higher than
our estimate of Rs3.9bn driven by higher Net Sales. Consensus PAT estimate
was Rs4.5bn.
EBITDA at Rs10.9bn (+13%QoQ, +27%YoY) was higher than our estimate
of Rs8.6bn. Consensus EBITDA estimate was Rs9.4bn.
Net Sales of Rs33.3bn (+32%QoQ, +45%YoY) was a surprise primarily
driven by higher steel volumes and higher pellet volumes. Consensus Net
Sales was Rs28.2bn.
— Volumes were higher than estimated due to inventory liquidation.
— However, JSPL’s cost was also higher in the quarter as JSPL reduced
sponge iron ore production in the quarter by 7% (c24kt) and used HBI
(Hot Briquetted Iron from Shahdeed Iron & Steel Company). JSPL’s
sponge iron cost per tonne (cRs7,000/t) is significantly lower than HBI
cost of Rs21,500/t (landed cost).
— Hence, JSPL’s EBITDA margins have declined to 32.6% from 38.1% in
Q1FY12.
— JSPL’s standalone iron & steel EBIT has increased 27% QoQ to Rs9.7bn
(+Rs2bn QoQ) whereas Consolidated Iron & Steel EBIT has increased
33% QoQ to Rs11.4bn (+cRs3bn) due to profitability in Shahdeed Iron &
Steel division.
There was an exceptional loss of Rs1.48bn in Q2FY12 on account of writeoff
of investments in overseas mining & exploration activities
Jindal Steel & Power
Jindal Steel and Power, an integrated steel producer, is one of India's
major steel and power producer, with a significant presence in mining,
power generation and infrastructure. Its products include a range of
long products and flat products, catering to the various needs in the
steel market.
Statement of Risk
Key risks to our rating include, 1) faster than expected execution, 2)
Strong pick up in merchant tariffs, and, 3) Strong recovery in steel
prices driven by western demand recovery, 4) Better than expected
steel demand growth in India. Key downside risks to the business are,
1) delay in the execution, 2) lower than expected tariffs, 3) adverse
change in regulations, 4) lower than expected PLFs, and, 5)
availability of quality management and personnel, 6) delay in attaining
environmental/other clearances for the mines.
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