Jindal Steel and Power - 2Q Results: Power disappoint:: BoA ML

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Jindal Steel and Power Limited
2Q Results: Power disappoint


􀂄 2Q below expectations as power disappoint, Underperform
Group PAT declined 7%QoQ to Rs8.9bn, below our Rs9.8bn est. This was mainly
due to lower power profits led by lower PLF & tariff. Standalone (steel) PAT was
13% ahead due to better realizations & lower costs. JPL (51% of PAT) PAT is
trending lower as PLF has peaked & merchant tariffs are softening. We expect
EPS to grow 17% in FY12 led by captive power expansion. We think this is priced
in as JSPL is trading at 9x FY12 EBITDA & 7% premium to our SOTP NPV.
Power profits decline QoQ on lower tariffs & PLF
JPL PAT was Rs4.6bn, down 18%QoQ, 19% below our est. Generation declined
11%QoQ during 2Q due to maintenance shutdown at two of its units. Avg. tariff
declined 5%QoQ, 8% below our est. due to seasonally weaker merchant tariff.
Assuming 75% of sales on merchant basis, we est. implied avg. merchant tariff
was Rs4.9/unit during 2Q. We forecast JPL EBITDA to decline 5% in FY11.
Standalone PAT (steel) grew 10% QoQ to Rs4.78bn
Sales vols. grew 15%QoQ to 0.46mn tons in line with our est. This was lower than
2Q output of 0.56mn tons reflecting increase in inventories & internal consumption
for expansion projects. Realizations were better than expected, down marginally
QoQ due to better mix. Surprisingly, input costs were flat QoQ despite higher
volumes & coking coal prices. JSPL indicated production of ~2.5mn tons in FY12.
Captive power on track, 2400MW project remains on hold
Unit I (135MW) of Raigarh captive power has been stabilized. Unit II is under
stabilization. Unit I (135MW) Orissa captive power is scheduled for commissioning
in Nov 2010. The 2400MW JPL project remains on hold as approvals are pending,
but JSPL has maintained time line of commissioning by March 2012. In steel, it
expects to commission 0.6mtpa structural mill at Raigarh by Dec 2010. It expects
pellet production to ramp up in 2H and expects external sales of ~2mt in FY12.