Jindal Steel & Power - Positive outlook; company update; BUY: Edelweiss, PDF link

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Jindal Steel & Power (JSP IN, INR 487, Buy)

Jindal Steel & Power’s (JSPL) steel business performed strongly in Q4FY12, led by sharp jump in both steel and pellet sales volumes. The segment is likely to remain robust owing to firm steel prices, weak coking coal cost and completion of Angul DRI project in March 2013. JSPL intends to start its first unit in the 2,400 MW power project one year ahead of its original schedule. We are positive on JSPL on the back of growth in both steel and power businesses and its portfolio of resource assets. We maintain ‘BUY’ with TP of INR648.

Steel business: Outlook positive for near term

JSPL expects coking coal prices to remain weak at the current levels and domestic steel prices to remain firm, thereby implying strong EBITDA margins in the near term.  The 1.5mtpa plate mill is expected to be commissioned in Q1FY13, but the 2.2mtpa DRI plant is delayed by a quarter to March 2013 (factored in our estimates). Pellet realisations and volumes are also expected to remain robust going forward.

Power business: Looking to advance 2,400 MW project

The company is looking to commission final 4 units of 135 MW in the next 4-5 months. Angul and Raigarh units are expected to operate at 95% and 75-80% PLF post stabilization, respectively. The company has accelerated implementation of 2,400 MW project and is targeting early start of Mar’13 for the first unit against Mar’14 earlier.

Outlook and valuations: Attractive; maintain ‘BUY’

The company expects merchant power tariff to remain at INR3.75-4.25/unit in FY13, led by high coal prices, and then rise in FY14. Steel business could benefit from Angul DRI plant volumes in FY14. Further, generation from 10x135 MW power plant is expected to ramp up in FY13. We retain our FY13 and FY14 estimates and maintain‘BUY/SO’ with TP of INR648/share. The stock is trading at 6.6x FY14E EV/EBITDA.

Jindal Steel & Power - Positive outlook; company update; BUY

Regards,