Jindal Steel and Power (JNSP.BO)
Alert: Tepid 1QFY14; Buy-Back Looks the Right Thing to Do
To consider buy-back - JSPL’s board of directors has constituted a sub-committee
to consider the buy-back of shares and seek relevant approvals from lenders.
Buy-back makes sense in our view - JSPL’s stock has corrected sharply due to
controversies related to captive coal, iron ore, concerns on new SBD and a decline
in steel/power realizations. The stock is now below FY13A book value of Rs226 and
replacement cost of assets of Rs258/share. Despite muted performance in FY13,
JSPL still generated RoE of 18% (adjusting for one-offs) and 15% on reported PAT
basis with operating cash flow of ~US$840mn. In such a situation, we believe
buying back the stock is a sensible step for long-term shareholder value creation.
1QFY14 recurring PAT was 13% below estimate – 1QFY14 consolidated
recurring PAT at Rs6.5bn was below Citi’s estimate of Rs7.5bn. The miss was
mainly due to lower profitability of overseas operations. 1QFY14 Oman EBITDA at
US$15mn was below expectations. The South African mines had lower profits due
to a decline in coal prices. Further, the Mozambique mines had initial high start-up
costs. However, 1QFY14 reported PAT (including MTM on forex loans) at Rs4.9bn
was ahead of Citi at Rs4.2bn.
Jindal Power’s realizations remain flat QoQ – JPL’s blended realizations at
Rs3.25/kwh were flat QoQ. PLF at 100% was high and generation increased 2%
QoQ. JPL PAT at Rs3.2bn was 9% ahead of Citi at Rs2.9bn.
Steel sales remain strong – Blended steel realizations rose ~5-6% QoQ as
discounts were reduced. Realizations have fallen more than 10% vs last year. Sales
volume rose 18% YoY to 665kt; this compares to flat YoY demand for the country as
a whole. JSPL has increased its focus on exports – export volumes rose 220% YoY
and exports are now ~18-20% of the Indian steel business sales.
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Alert: Tepid 1QFY14; Buy-Back Looks the Right Thing to Do
To consider buy-back - JSPL’s board of directors has constituted a sub-committee
to consider the buy-back of shares and seek relevant approvals from lenders.
Buy-back makes sense in our view - JSPL’s stock has corrected sharply due to
controversies related to captive coal, iron ore, concerns on new SBD and a decline
in steel/power realizations. The stock is now below FY13A book value of Rs226 and
replacement cost of assets of Rs258/share. Despite muted performance in FY13,
JSPL still generated RoE of 18% (adjusting for one-offs) and 15% on reported PAT
basis with operating cash flow of ~US$840mn. In such a situation, we believe
buying back the stock is a sensible step for long-term shareholder value creation.
1QFY14 recurring PAT was 13% below estimate – 1QFY14 consolidated
recurring PAT at Rs6.5bn was below Citi’s estimate of Rs7.5bn. The miss was
mainly due to lower profitability of overseas operations. 1QFY14 Oman EBITDA at
US$15mn was below expectations. The South African mines had lower profits due
to a decline in coal prices. Further, the Mozambique mines had initial high start-up
costs. However, 1QFY14 reported PAT (including MTM on forex loans) at Rs4.9bn
was ahead of Citi at Rs4.2bn.
Jindal Power’s realizations remain flat QoQ – JPL’s blended realizations at
Rs3.25/kwh were flat QoQ. PLF at 100% was high and generation increased 2%
QoQ. JPL PAT at Rs3.2bn was 9% ahead of Citi at Rs2.9bn.
Steel sales remain strong – Blended steel realizations rose ~5-6% QoQ as
discounts were reduced. Realizations have fallen more than 10% vs last year. Sales
volume rose 18% YoY to 665kt; this compares to flat YoY demand for the country as
a whole. JSPL has increased its focus on exports – export volumes rose 220% YoY
and exports are now ~18-20% of the Indian steel business sales.
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