Buy Jindal Steel and Power; target of Rs 1,240: ICICI Securities

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ICICI Securitie's research report on Jindal Steel and Power

JSPL’s Q1FY25 EBITDA (adj.) was up 15% QoQ (down 6.2% YoY) at INR 28.5bn, 20% ahead of our and street’s estimates. Key points: 1) Sales volume rose 13.6% YoY (4% QoQ) to 2.09mt; 2) EBITDA/te (adj.) rose 3.5% QoQ at INR 12,886 mainly due to better product mix as HSM ramped up; 3) average realisation was up 1% QoQ while coking coal cost was down USD 23/te; 4) net debt declined by INR 7.4bn QoQ despite capex of INR 28bn in Q1FY25, may be due to working capital unlocking; 5) performance of subsidiaries also improved, contributing INR 1.4bn of EBITDA compared to loss of INR 747mn in Q4FY24. Going ahead, we expect EBITDA to improve as coking coal and iron ore costs are likely to decline by USD 30-35/te and INR 500-1,000/te, respectively. Besides, the refinement in product mix is also likely to contribute. That said, realisation is down 1% QoQ as of now.

Outlook

Jindal Steel & Power’s (JSPL) Q1FY25 performance was ahead of our and consensus estimates. Key points: 1) Sales volume rose 13.6% YoY (4% QoQ) to 2.09mt – the highest since Q2FY22; 2) EBITDA/te (adj.) at INR 12,886 was up 3.5% QoQ mainly due to better product mix; 3) time over-run in Angul expansion project; and 4) net debt was down by INR 7.4bn QoQ to INR 104bn, net debt/EBITDA stood at 1x. Going ahead, we expect EBITDA/te to improve further owing to lower steel making costs, despite realisation coming off. That said, we would keep a close tab on the capex timelines as it is critical for volume growth. Taking cognisance of Q1 performance, we have raised our FY25/26E EBITDA slightly by 4%/2%. Maintain BUY with an unchanged TP of INR 1,240 based on 7.5x FY26E EBITDA.

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