Buy Jai Balaji Ind; target of Rs 323: Motilal Oswal

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Buy Jai Balaji Ind; target of Rs 323: Motilal Oswal

Motilal Oswal is bullish on Jai Balaji Industries and has recommended buy rating on the stock with a target of Rs 323 in its November 18, 2010 research report.

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Motilal Oswal is bullish on Jai Balaji Industries and has recommended buy rating on the stock with a target of Rs 323 in its November 18, 2010 research report.

"Jai Balaji Industries' 2QFY11 adjusted PAT increased 12% QoQ to Rs 116 million due to improved performance of the metallics division. Revenues increased 20% QoQ to Rs 4.95 billion due to higher pig iron volumes and better sponge realizations. Pig iron sales grew 80% QoQ to 58,230 tons as the company improved pig iron production after restarting its second blast furnace in August 2010. Sponge sales declined 9% QoQ to 15,888 tons as the company produced more steel and produced less sponge due to scarcity of iron ore."

"EBITDA grew 7% QoQ to Rs 662 million due to higher pig iron sales, despite higher RM costs and a labor wage settlement in 2QFY11. Iron ore costs increased due to scarcity of ore led by the monsoons and ongoing mining issues in Orissa. Its ductile iron (DI) pipe mill started commercial production from the first week of November and is producing ~250tons a day. Capacity utilization is expected to improve to 500 tons a day by the end of November 2010. The demand for DI pipes is robust. The order book is 30,000 tons."

"The syndication to raise Rs 12.3 billion debt for the Purulia project is in progress. The company has so far received firm sanction letters of Rs 3.5 billion from three banks. The management is confident of completing financial closure by Dec'10. In the near term Jai Balaji is focusing on ramping up DI pipe production, which will improve its margins due to its use of captive pig iron and sinter. In the longer term, it is focusing on increasing steel production capacity and developing coal blocks so as to keep down the cost of steel production. Capex requirement will be high over a few years. We expect capex of Rs 2.5 billion in FY11 and Rs 6 billion in FY12 largely due to investment in a greenfield project at Purulia. As near-term earnings do not capture large long term upsides, we have valued the stock based at 2x FY12E book value, implying a target price of Rs 323, an upside of 18%. Maintain Buy," says Motilal Oswal research report.

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To read the full report click on the attachment