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Jindal Steel and Power (JSP)
Metals & Mining
EBITDA miss on weak steel deliveries. JSPL’s reported consolidated EBITDA of Rs17.4
bn was 7.4% lower than our estimate. EBITDA miss was led by inventory build-up in
steel products and pellets. Power segment performance met expectations and was
driven by better merchant tariff realizations during 3QFY12. JSPL’s captive ownership of
resources and strong cash generation makes it an attractive business. However,
valuations are expensive despite recent correction in the stock price. REDUCE. We will
review our estimates post earnings call.
Volume miss in steel business leads to earnings miss
JSPL’s reported consolidated EBITDA of Rs17.4 bn was 7.4% lower than our estimate. Net income
of Rs9.9 bn (+13.9% qoq, 6.7% yoy) missed our estimate by 5%. Earnings miss could have been
higher but for lower-than-expected forex loss of Rs500 mn versus our estimate of Rs800 mn.
Power business performance was in line with the entire earnings contributed by the steel segment.
Record steel production; however, increase in inventory leads to weak performance
Steel production of 757K tonnes (+20.2% qoq, +30% yoy) was at an all-time high. However, steel
deliveries at 591K tonnes (-1.2% qoq) was muted on account of significant qoq increase in steel
inventory. We would seek clarifications on the surprise increase in inventory, given that longs
demand was strong. Pellet inventories also increased by 80K tonnes qoq.
Standalone EBITDA of JSPL of Rs9.9 bn (-8.4% qoq) was also impacted by purchase of 150K
tonnes of HBI from Shadeed iron (50K tonnes in 2QFY12) at high rate of US$475/tonne (prices
have declined US$40/tonne since); this boosted profits of Shadeed but hurt standalone
performance.
JPL results meet estimate, merchant realizations improve
JSPL’s subsidiary Jindal Power (JPL) reported 3QFY12 net sales of Rs8 bn (flat yoy, 22% qoq) and
net income of Rs4.8 bn (-1% yoy, 17% qoq) against our estimates of Rs8 bn and Rs4.8 bn,
respectively. Average realization (Rs3.9/kwh, in line with estimates) improved 9% sequentially
driven by upward trending merchant rates post the monsoon weakness. Gross generation of
2,055 MU implied a PLF of 102% (93% in 2QFY12, 101% in 3QFY11).
Estimates review post quarterly earnings call
We will revisit our estimates and target price post tomorrow’s 3QFY12 earnings conference call.
Positives of captive ownership of resources and balanced mix of earnings and cash flows between
steel and power are definitive positives but fully captured in the current market price. Valuations
are expensive. We maintain REDUCE rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jindal Steel and Power (JSP)
Metals & Mining
EBITDA miss on weak steel deliveries. JSPL’s reported consolidated EBITDA of Rs17.4
bn was 7.4% lower than our estimate. EBITDA miss was led by inventory build-up in
steel products and pellets. Power segment performance met expectations and was
driven by better merchant tariff realizations during 3QFY12. JSPL’s captive ownership of
resources and strong cash generation makes it an attractive business. However,
valuations are expensive despite recent correction in the stock price. REDUCE. We will
review our estimates post earnings call.
Volume miss in steel business leads to earnings miss
JSPL’s reported consolidated EBITDA of Rs17.4 bn was 7.4% lower than our estimate. Net income
of Rs9.9 bn (+13.9% qoq, 6.7% yoy) missed our estimate by 5%. Earnings miss could have been
higher but for lower-than-expected forex loss of Rs500 mn versus our estimate of Rs800 mn.
Power business performance was in line with the entire earnings contributed by the steel segment.
Record steel production; however, increase in inventory leads to weak performance
Steel production of 757K tonnes (+20.2% qoq, +30% yoy) was at an all-time high. However, steel
deliveries at 591K tonnes (-1.2% qoq) was muted on account of significant qoq increase in steel
inventory. We would seek clarifications on the surprise increase in inventory, given that longs
demand was strong. Pellet inventories also increased by 80K tonnes qoq.
Standalone EBITDA of JSPL of Rs9.9 bn (-8.4% qoq) was also impacted by purchase of 150K
tonnes of HBI from Shadeed iron (50K tonnes in 2QFY12) at high rate of US$475/tonne (prices
have declined US$40/tonne since); this boosted profits of Shadeed but hurt standalone
performance.
JPL results meet estimate, merchant realizations improve
JSPL’s subsidiary Jindal Power (JPL) reported 3QFY12 net sales of Rs8 bn (flat yoy, 22% qoq) and
net income of Rs4.8 bn (-1% yoy, 17% qoq) against our estimates of Rs8 bn and Rs4.8 bn,
respectively. Average realization (Rs3.9/kwh, in line with estimates) improved 9% sequentially
driven by upward trending merchant rates post the monsoon weakness. Gross generation of
2,055 MU implied a PLF of 102% (93% in 2QFY12, 101% in 3QFY11).
Estimates review post quarterly earnings call
We will revisit our estimates and target price post tomorrow’s 3QFY12 earnings conference call.
Positives of captive ownership of resources and balanced mix of earnings and cash flows between
steel and power are definitive positives but fully captured in the current market price. Valuations
are expensive. We maintain REDUCE rating.
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