Jindal Steel & Power Weak 1Q: Steel business weakness and CPP utilisation challenges are headwinds ::Credit Suisse

● Consolidated sales missed our estimates by 10%. Two-thirds of
the miss came from lower steel and power sales volumes in the
standalone business. A 20-day shutdown at CPP units and higher
captive demand led to lower power sales from captive units.
● A third of the sales miss came from lower volumes at the Shadeed
plant in Oman. The 1,000 MW power unit performed at 100%
utilisation in the quarter. However, power realisations continued to
be subdued with likely selling through exchanges.
● Material costs were lower due to lower steel volumes. EBITDA
missed by 11% as lower material costs were offset by a Rs 2bn
MTM forex loss booked in 1Q14. Steel EBITDA/t at $209
improved sharply QoQ (4Q13: $138) when discounted sales were
used to push inventory. The South African coal business seems to
have reversed the EBIDTA losses from 4Q13.
● A company share buyback now seems inevitable. A sub-committee
of Board of Directors has been authorised to evaluate such a buyback

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Sales miss on lower volumes, forex loss impacts EBITDA
Consolidated sales missed our estimates by 10%. Nearly two-thirds of
the miss came from the standalone business: 11% lower than the
expected steel sales volumes and 33% lower power sales from the
CPP units due to higher captive demand and production loss due to a
20-day maintenance shutdown.
The rest of the miss came from lower sales volume at Shadeed.
Power sales from 1,000 MW IPP were broadly in line with the plant
running at full capacity. However, selling through exchanges
continued to keep realisations subdued. Power generation costs at the
1,000 MW IPP continued to remain high as in 4Q13. Higher-thanexpected other income was offset by higher consolidated tax rate
(25% versus estimated 21%). PAT missed our estimate by 21%.

Due to lower volumes of steel sales, material costs were also lower.
Other costs seem to have been much lower than our expectations as
despite the Rs2 bn MTM forex loss and Rs1.8 bn start-up expenses at
Angul (both part of Other Expenditure), EBITDA missed our estimate
by only 11%. Standalone EBITDA/t at $209 was broadly in line and
51% up over 4Q13 when discounted sales cleared inventory.
The South African coal business seems to have reversed the EBITDA
losses incurred in 4Q13.