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A cautious tread to mine auctions. Jindal Steel and Power will be selective in bidding for coal mines with its strategy focused on acquiring meaningful reserves with easy access and adequate infrastructure to ensure value maximization over the life of assets. As such, it has bid for only 2 mines for the steel business in the first tranche of auctions. While bids for steel may see aggressive participation, JSP has the advantage of wining coal blocks for its power business. The outcome is uncertain and can vary significantly. We cut our EBITDA estimate by 2-7% for FY2015-17 to factor in a decline in steel prices. Maintain REDUCE with an unchanged TP of ` 160.
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Bidding strategy to factor meaningful blocks that can add value over the long life of projects Important factors in JSP’s bidding strategy will be—available mine reserves, availability and ease of logistics infrastructure, mine infrastructure and preference for open cast over underground mining. JSP does not want to lock the end-use project with a sub-optimal mine option, given that auctioning in batches can open further avenues to ensure coal security. The management is likely to be selective in choosing mines to ensure value maximization over the life of a project. JSP selective in bidding for coal mines JSP has been selective in choosing mines—it bid for only five mines in the first tranche of auctions, lower than the bids from other large metal names with comparable coal requirements (Sesa Sterlite has bid for 12 mines and Hindalco for 8). In the first tranche of mine auctions, JSP has submitted technical bids for only two large coal blocks for its steel business and for three blocks for its power business (Jindal Power). However, for its steel business, JSP has submitted 4 bids each for two of the coal blocks, namely Gare Palma IV/1 and Gare Palma IV/7 with extractable reserves of 127 mn tons and 57 mn tons, respectively. The four individual bids for these coal blocks represent four End-User Projects (EUPs) – two each in Angul and Raigarh representing steel, coal gasification, and captive power plants. In the power business, JSP has submitted 3 bids for Gare Palma IV/2 & 3 coal mine with extractable reserves of 187 mn tons and a bid each for smaller Amelia North and Toksud North coal blocks. The 3 bids for the Gare Palma mine represents 3 EUPs consisting of 1,000 MW (Tamnar I project) and 2 units x 1,200 MW each (2,400 MW Tamnar II power plant). Expect aggressive bidding in steel; Jindal Power has an advantage, given its proximity to mines We expect aggressive bidding for coal blocks that JSP is eyeing for its steel project while close proximity to mines will play to its advantage in the power business. In steel, JSP may face intense competition from Sesa Sterlite/Hindalco due to lack of alternatives. The outcome is uncertain and can vary significantly. We cut our EBITDA estimate by 2-7% to factor in a decline in steel prices. Maintain REDUCE with unchanged TP of `160.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily05022015pu.pdf
A cautious tread to mine auctions. Jindal Steel and Power will be selective in bidding for coal mines with its strategy focused on acquiring meaningful reserves with easy access and adequate infrastructure to ensure value maximization over the life of assets. As such, it has bid for only 2 mines for the steel business in the first tranche of auctions. While bids for steel may see aggressive participation, JSP has the advantage of wining coal blocks for its power business. The outcome is uncertain and can vary significantly. We cut our EBITDA estimate by 2-7% for FY2015-17 to factor in a decline in steel prices. Maintain REDUCE with an unchanged TP of ` 160.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Bidding strategy to factor meaningful blocks that can add value over the long life of projects Important factors in JSP’s bidding strategy will be—available mine reserves, availability and ease of logistics infrastructure, mine infrastructure and preference for open cast over underground mining. JSP does not want to lock the end-use project with a sub-optimal mine option, given that auctioning in batches can open further avenues to ensure coal security. The management is likely to be selective in choosing mines to ensure value maximization over the life of a project. JSP selective in bidding for coal mines JSP has been selective in choosing mines—it bid for only five mines in the first tranche of auctions, lower than the bids from other large metal names with comparable coal requirements (Sesa Sterlite has bid for 12 mines and Hindalco for 8). In the first tranche of mine auctions, JSP has submitted technical bids for only two large coal blocks for its steel business and for three blocks for its power business (Jindal Power). However, for its steel business, JSP has submitted 4 bids each for two of the coal blocks, namely Gare Palma IV/1 and Gare Palma IV/7 with extractable reserves of 127 mn tons and 57 mn tons, respectively. The four individual bids for these coal blocks represent four End-User Projects (EUPs) – two each in Angul and Raigarh representing steel, coal gasification, and captive power plants. In the power business, JSP has submitted 3 bids for Gare Palma IV/2 & 3 coal mine with extractable reserves of 187 mn tons and a bid each for smaller Amelia North and Toksud North coal blocks. The 3 bids for the Gare Palma mine represents 3 EUPs consisting of 1,000 MW (Tamnar I project) and 2 units x 1,200 MW each (2,400 MW Tamnar II power plant). Expect aggressive bidding in steel; Jindal Power has an advantage, given its proximity to mines We expect aggressive bidding for coal blocks that JSP is eyeing for its steel project while close proximity to mines will play to its advantage in the power business. In steel, JSP may face intense competition from Sesa Sterlite/Hindalco due to lack of alternatives. The outcome is uncertain and can vary significantly. We cut our EBITDA estimate by 2-7% to factor in a decline in steel prices. Maintain REDUCE with unchanged TP of `160.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily05022015pu.pdf
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