Jindal Saw - Hexa Tradex listing likely at INR162-175; company update; Buy: Edelweiss PDF link

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Jindal Saw (JSAW IN, INR 159, Buy)

Jindal Saw’s (JSAW) demerged investment arm, Hexa Tradex (HEXA), will get listed on stock exchanges on April 20, 2012. Based on comparables of the Jindal Group and non-Jindal Group traded investment holding companies, we estimate HEXA’s fair value at INR162-175/share. This implies ~60% discount to the net investment value. Maintain ‘BUY’ on JSAW with a target price of INR203/share.

Background of demerger of Hexa Tradex with Jindal Saw

Hexa Tradex, demerged investment arm of JSAW, is slated to get listed on stock exchanges on April 20, 2012, post receiving approval from Allahabad High Court (in November 2011). JSAW’s Board of Directors had approved the demerger in November 2010. Investors were given one HEXA share for every five shares held in JSAW. The record date for the same was November 23, 2011 (refer Table 1 for demerger timelines). 

We value HEXA at INR162-175/share, implying 60% discount

To arrive at HEXA’s fair value, we compared the discount on investment value for similar companies. We analysed two Jindal Group companies and five non-Jindal companies, where the discount to net equity varied between 43% and 73%. Based on the average of both these categories we value HEXA at INR162-175/share, implying 60% discount to net equity value (refer table 2 for details).

Outlook and valuations: Awaiting mine start; maintain ‘BUY’

Commencement of iron ore mine is the key trigger for JSAW stock. While management has guided for mine start in June 2012, we expect further delays in the same. We maintain ‘BUY/Sector Outperformer’ on the stock. At INR159, JSAW trades at 10.2x and 8.4x of our FY13E and FY14E EPS, respectively.

Jindal Saw - Hexa Tradex listing likely at INR162-175; company update; Buy

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