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Jindal Steel & Power Ltd
OW: 3Q11 results dampened by steel segment
EBITDA of INR15.9bn is c15% below our estimate; Steel
segment disappoints
Higher unit sales at JPL offset by lower realisations qoq
Maintain our Overweight rating and INR820 target price
Power segment results as expected, while steel disappoints.
JSPL reported consolidated sales of INR32bn (+3% q-o-q/18% y-o-y), or c5%
below our estimate. While the power segment did not surprise us, stand-alone
revenues of INR24bn were c5% below our estimate. Realisation per ton of metal
sold dropped 13% q-o-q, even though prices of domestic long products – these
forms a major portion of the company’s steel product mix along with semis – saw
a strong q-o-q jump of 10%; we believe this could be due to an overall inferior
product mix owing to a significant amount of DRI & Pig Iron sales (volumes up
229% q-o-q).
Consolidated EBITDA of INR15.9bn (+6% q-o-q/9% y-o-y) was c15% below our
estimate of INR18.7bn, largely due to the underperformance of the steel segment
(INR9.3bn vs. our estimate of INR11.8bn). Also, stand-alone power costs were
c12% higher q-o-q.
Power production at Jindal Power (JPL) was 2,238m units (+13.5% q-o-q/5.6%
y-o-y). However, revenues were lower due to a 14% q-o-q (22% y-o-y) fall in
realisations (INR3.8 per unit). JPL’s NPAT at INR4.9bn was up 6% q-o-q/down
16% y-o-y.
Consolidated NPAT was INR9.5bn (+6% q-o-q/9% y-o-y).
4Q appears likely to be better with the move up in steel prices and commissioning of
the bar mill at Patratu. Shadeed Iron and Steel, acquired in July2010 and expected to
start commercial production w.e.f 1 Jan 2011, ahead of schedule by three months.
Second unit of 135MW power plant commissioned at Raigarh during the quarter.
We will review our estimates after the conference call scheduled for 25 January 2011 at
14:30 IST (India dial-in 1 800 200 1221).
We value JSPL’s stand-alone business on FY12e EV/EBITDA of 7.5x and JSPL’s stake
in Jindal Power & JSP’s Bolivian operations by DCF-to-firm basis. Our target price is
INR820. We rate the stock OW. Key risks include steel and coking coal price movements.
Valuation and risks
We value JSPL’s stand-alone business on FY12e EV/EBITDA of 7.5x and JSPL’s stake in Jindal Power
by DCF-to-firm basis. Our target price of INR820 consists of INR433/share in the stand-alone business,
INR325/share in JSPL’s stake in Jindal Power, and INR202/share in JSPL’s Bolivian Mining operations.
Our 12-month target price is INR820.
Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppts above and below
our hurdle rate for Indian stocks of 11%, or 6-16% around the current share price. Our target price implies a
potential return, including dividend yield, of 17.2% from the closing price of INR699.85 on 24 January 2011;
as this potential return is above the Neutral band, we reiterate our Overweight rating on the stock.
Downside risks, in our view, include lower-than-expected steel prices and higher coking coal prices. JSP
also faces multiple execution-related risks, considering the sheer number of projects under way at the
consolidated entity.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Jindal Steel & Power Ltd
OW: 3Q11 results dampened by steel segment
EBITDA of INR15.9bn is c15% below our estimate; Steel
segment disappoints
Higher unit sales at JPL offset by lower realisations qoq
Maintain our Overweight rating and INR820 target price
Power segment results as expected, while steel disappoints.
JSPL reported consolidated sales of INR32bn (+3% q-o-q/18% y-o-y), or c5%
below our estimate. While the power segment did not surprise us, stand-alone
revenues of INR24bn were c5% below our estimate. Realisation per ton of metal
sold dropped 13% q-o-q, even though prices of domestic long products – these
forms a major portion of the company’s steel product mix along with semis – saw
a strong q-o-q jump of 10%; we believe this could be due to an overall inferior
product mix owing to a significant amount of DRI & Pig Iron sales (volumes up
229% q-o-q).
Consolidated EBITDA of INR15.9bn (+6% q-o-q/9% y-o-y) was c15% below our
estimate of INR18.7bn, largely due to the underperformance of the steel segment
(INR9.3bn vs. our estimate of INR11.8bn). Also, stand-alone power costs were
c12% higher q-o-q.
Power production at Jindal Power (JPL) was 2,238m units (+13.5% q-o-q/5.6%
y-o-y). However, revenues were lower due to a 14% q-o-q (22% y-o-y) fall in
realisations (INR3.8 per unit). JPL’s NPAT at INR4.9bn was up 6% q-o-q/down
16% y-o-y.
Consolidated NPAT was INR9.5bn (+6% q-o-q/9% y-o-y).
4Q appears likely to be better with the move up in steel prices and commissioning of
the bar mill at Patratu. Shadeed Iron and Steel, acquired in July2010 and expected to
start commercial production w.e.f 1 Jan 2011, ahead of schedule by three months.
Second unit of 135MW power plant commissioned at Raigarh during the quarter.
We will review our estimates after the conference call scheduled for 25 January 2011 at
14:30 IST (India dial-in 1 800 200 1221).
We value JSPL’s stand-alone business on FY12e EV/EBITDA of 7.5x and JSPL’s stake
in Jindal Power & JSP’s Bolivian operations by DCF-to-firm basis. Our target price is
INR820. We rate the stock OW. Key risks include steel and coking coal price movements.
Valuation and risks
We value JSPL’s stand-alone business on FY12e EV/EBITDA of 7.5x and JSPL’s stake in Jindal Power
by DCF-to-firm basis. Our target price of INR820 consists of INR433/share in the stand-alone business,
INR325/share in JSPL’s stake in Jindal Power, and INR202/share in JSPL’s Bolivian Mining operations.
Our 12-month target price is INR820.
Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppts above and below
our hurdle rate for Indian stocks of 11%, or 6-16% around the current share price. Our target price implies a
potential return, including dividend yield, of 17.2% from the closing price of INR699.85 on 24 January 2011;
as this potential return is above the Neutral band, we reiterate our Overweight rating on the stock.
Downside risks, in our view, include lower-than-expected steel prices and higher coking coal prices. JSP
also faces multiple execution-related risks, considering the sheer number of projects under way at the
consolidated entity.
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