Jindal Steel and Power: Steel Realizations Weak; Inventory Liquidation ::Citi Research

Jindal Steel and Power (JNSP.BO)
Alert: Steel Realizations Weak; Inventory Liquidation
 4QFY13 PAT 25% below estimates – JSPL’s 4QFY13 consolidated PAT at
Rs7.6bn fell 20% QoQ / 35% YoY and was 25% below Citi (Rs9.9bn). The miss in
PAT was mainly due to (1) sharp decline in blended steel realizations which fell 7%
QoQ / 12% YoY (9% below Citi) due to inventory liquidation in the quarter; (2) higher
opex, depreciation and interest due to the commissioning of the plate mill at Angul
(low capacity utilization as DRI has not been commissioned).
 Steel realizations have already inched up in April – Steel realizations have
already inched up 3-4% in April13 as JSPL has taken price hikes. Our channel
checks suggest that the prices have also improved for other players in the industry.
 Strong steel volumes in 4QFY13 – Steel sales volume at 909k tons was at a
historical high; up 24% QoQ / 19% YoY. Steel and pellet production was more or
less in-line. Due to strong sales, inventory levels at the end of FY13 are flat yoy.
 Jindal Power’s realizations remain depressed – JPL’s 4QFY13 generation
rebounded strongly and PLF at 99.5% was healthy. However the blended
realizations at Rs3.25/ kwh (assuming 9% aux. consumption) fell 5% QoQ; below
Citi est. at Rs3.43/kwh.
 Overseas operations ramping up well – JSPL has started production of coking
coal at its captive mines in Mozambique. 0.5mt of coking coal is expected to be
delivered to India operations in FY14. HBI Production at Oman has increased 23%
YoY to 1.52mtpa.
 A number of projects set to commission over next 6-9 months – Angul project
(1.6mtpa) will start by Sep13. Unit 1 (600MW) of Tamnar 2 (2400MW) will be
commissioned by July-Sep13 and 3 units of Tamnar 2 (1800MW) will come online
by Mar14. The second 4.5mtpa pellet plant will commissioned by Dec13. 2mtpa
steel rolling mill at Oman will also be commissioned by Dec13.
 Utkal-B1 mining lease remains an overhang – The Utkal-B1 mining lease still
remains to be signed; this remains a key overhang on the stock. However JSPL has
already built coal inventory of ~600k tons at Angul and this is likely to go up to ~1mt.
This coal inventory should be sufficient to run the project till June14.

�� -->