Jindal Steel & Power: Regulatory Overhang + Single-Digit RoIC = De-rating; Sell:: Nirmal Bang

Regulatory Overhang + Single-Digit RoIC = De-rating; Sell We assign a Sell rating to Jindal Steel & Power (JSPL) because of regulatory overhang, which will lead to a sharp deterioration in incremental return ratios. In the past five years, JSPL has grown multi-fold on the back of captive resources, but future expansion depends on merchant raw material supply. Besides this, JSPL is apparently one of the few companies which have benefited from captive coal mine allocation, which along with the company’s large size, makes it more vulnerable to regulatory actions like ceiling on merchant power price or demand for free power (as witnessed in Orissa). We expect RoE and RoCE to decline from 21.9% and 12.2% in FY12 to 15.3% and 9.1% in FY14E, respectively, while RoIC over FY10-14E is likely to be just 3.9%. We have set a TP of Rs300 on JSPL

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Regulatory Overhang + Single-Digit RoIC = De-rating; Sell We assign a Sell rating to Jindal Steel & Power (JSPL) because of regulatory overhang, which will lead to a sharp deterioration in incremental return ratios. In the past five years, JSPL has grown multi-fold on the back of captive resources, but future expansion depends on merchant raw material supply. Besides this, JSPL is apparently one of the few companies which have benefited from captive coal mine allocation, which along with the company’s large size, makes it more vulnerable to regulatory actions like ceiling on merchant power price or demand for free power (as witnessed in Orissa). We expect RoE and RoCE to decline from 21.9% and 12.2% in FY12 to 15.3% and 9.1% in FY14E, respectively, while RoIC over FY10-14E is likely to be just 3.9%. We have set a TP of Rs300 on JSPL