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Buy
Jindal Steel & Power (JNSP.BO)
Return Potential: 48% Equity Research
Defensive company in a cyclical space; reinstate rating at CL-Buy
Source of opportunity
We reinstate our rating on Jindal Steel & Power (JNSP.BO) at Buy, adding
it to our Conviction List with a 12-m SOTP based TP of Rs771, implying
48% potential upside. In our view, JSPL is best positioned vs. peers to
benefit from a potential hard landing scenario – given its diverse business
mix, best-in-class resource ownership (for steel and power), strong
pipeline of growth projects, and robust balance sheet. We like JSPL for its
strong earnings growth trajectory (we expect 28% FY12-FY14E CAGR) and
attractive valuation (trading near trough levels on both P/B and P/E basis).
Catalyst
(1) Commissioning of remaining 8 units of 135 MW each in JSPL over FY12-
FY13 at Raigarh and Angul, which will improve earnings and margins for the
company. (2) Commissioning of Plate Mill at Angul by March 2012; this will
mark the commencement of phased commissioning for the integrated 6 mn
tpa steel plant at Angul. (3) Better-than-expected steel pricing or power tariff
environment post the seasonally weak period, from Sept- Oct (4) There are
several ongoing projects (power projects at Raigarh and Angul, steel plant at
Angul) that have crossed critical milestones (land acquisition, environmental
clearance, equipment ordering, financial closure, raw material allocations, etc.)
and will likely be completed by FY2013. Thus, the company forecasts steel
capacity is likely to double in 3 years and power capacity to increase 5X in 4
years.
Valuation
Currently trading near trough valuations on FY12E P/B and FY12 P/E. Our
Rs 771 12-m SOTP-based TP implies FY12E P/B of 3.8x and FY12 P/E of
16.5x, below mid-cycle levels of FY12 P/B 5.2x and P/E 17x.
Key risks
Delays in growth projects; weaker-than-expected demand and pricing.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Buy
Jindal Steel & Power (JNSP.BO)
Return Potential: 48% Equity Research
Defensive company in a cyclical space; reinstate rating at CL-Buy
Source of opportunity
We reinstate our rating on Jindal Steel & Power (JNSP.BO) at Buy, adding
it to our Conviction List with a 12-m SOTP based TP of Rs771, implying
48% potential upside. In our view, JSPL is best positioned vs. peers to
benefit from a potential hard landing scenario – given its diverse business
mix, best-in-class resource ownership (for steel and power), strong
pipeline of growth projects, and robust balance sheet. We like JSPL for its
strong earnings growth trajectory (we expect 28% FY12-FY14E CAGR) and
attractive valuation (trading near trough levels on both P/B and P/E basis).
Catalyst
(1) Commissioning of remaining 8 units of 135 MW each in JSPL over FY12-
FY13 at Raigarh and Angul, which will improve earnings and margins for the
company. (2) Commissioning of Plate Mill at Angul by March 2012; this will
mark the commencement of phased commissioning for the integrated 6 mn
tpa steel plant at Angul. (3) Better-than-expected steel pricing or power tariff
environment post the seasonally weak period, from Sept- Oct (4) There are
several ongoing projects (power projects at Raigarh and Angul, steel plant at
Angul) that have crossed critical milestones (land acquisition, environmental
clearance, equipment ordering, financial closure, raw material allocations, etc.)
and will likely be completed by FY2013. Thus, the company forecasts steel
capacity is likely to double in 3 years and power capacity to increase 5X in 4
years.
Valuation
Currently trading near trough valuations on FY12E P/B and FY12 P/E. Our
Rs 771 12-m SOTP-based TP implies FY12E P/B of 3.8x and FY12 P/E of
16.5x, below mid-cycle levels of FY12 P/B 5.2x and P/E 17x.
Key risks
Delays in growth projects; weaker-than-expected demand and pricing.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
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