Jindal Steel & Power Ltd.|Q2FY15 First Cut Analysis | In line estimates, Lower revenue from Iron & Steel business was offset by strong revenue from power business :: IndiaNivesh

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In line estimates, Lower revenue from Iron & Steel business was
offset by strong revenue from power business
Jindal Steel & Power’s (JSPL) consolidated Q2FY15 revenue increased by 6.6% YoY
and 9.7% QoQ to Rs. 51.43 bn (v/s our estimates of Rs. 50.1 bn). Lower revenue
from Iron & Steel business was offset by strong revenue from power business due
to higher volume coupled with better realization. Sales volume of steel and pellets
remained disappointing, as demand and prices deteriorated sharply during Q2FY14.
Major increase in depreciation and financing costs, and losses from WCL Australia
coking coal mines caused net profit at consolidated level to drop by 2.5% YoY to
Rs. 4.4 bn.

EBITDA margin expanded 22 bps YoY to 31.9% due to better margin from power
business. Margin of steel & Iron business contracted by 331 bps YoY while power
business margin expanded by 288 bps YoY. JSPL’s Oman unit has been performing
consistently well and during Q2FY15 its turnover and PAT increased by 32% and
104% respectively. However, Company’s WCL Australia coking coal mines continued
to make losses due to operational reasons as well as low price levels. We believe
recent De-allocation of captive coal block which provides energy for power and
sponge iron plants will impact profitability, while the payment of levy would put
extra pressure on already highly leveraged balance sheet. We believe the likely
auctioning of coal blocks would be key positive for the stock. We will come out with
detailed analysis after the con-call scheduled on 5th November, 2014.

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