Ventura Securities is bullish on Jindal Steel & Power (JSPL) and has recommended buy rating on the stock in its February 21, 2013 research report. The research firm believes that, all the negatives such as termination of Bolivia project, Angul project delay and regulatory risks have been priced in.
Ventura Securities is bullish on Jindal Steel & Power (JSPL) and has recommended buy rating on the stock in its February 21, 2013 research report. The research firm believes that, all the negatives such as termination of Bolivia project, Angul project delay and regulatory risks have been priced in and limited downside is expecteded from current levels.
"JSPL's standalone business delivered EBITDA of Rs 1280 crore, marginally above the street expectation. Steel and pellet volumes at ~734kt and ~623kt, respectively, were strongly up 24% YoY and 34% YoY. While effective steel realisations declined ~10% QoQ, operating cost/t also declined ~9% QoQ. Standalone power sales volume at 603MU rose 10% QoQ.
Further, except pig iron, production of all other products was higher on a yoy basis. The inventory buildup during the quarter was quite low compared to the previous quarter. Pellet sales too jumped sharply in the quarter by 34.2% yoy and 43% qoq to 0.62mn tons, which was quite higher than our estimate. Production of pellet was marginally lower on a qoq basis at 0.97mn tons. Blended realizations for the company declined by 2.2% qoq due to subdued domestic demand.
Performance of the steel business was strong in Q3FY13, recording steel volumes at 17% growth on YoY basis and external pellet sales also increased at 34% YoY. However, PBIT/tonne declined 13% YoY due to higher consumption of imported HBI (which typically lowers yield). The management stated that its overseas businesses mining operations in Africa and steel business in Oman also performed well and reported 25% YoY growth in profit. Outlook on steel volumes and pricing was also upbeat. Share of steel business in overall PBIT was 62%, vs. 57% a year ago.
During Q3FY13 JPL's 1000 MW operated at 81% PLF against 102% LY. JPL reported 30% YoY drop in revenue at Rs 560 crore primarily due to weak realisation and lower volumes. Realisations dropped to Rs 3.2/kwh against Rs 4.1 and Rs 3.3 in Q3FY12 and Q2FY13 respectively. Dispatches were impacted by evacuation constraints whereas realizations were impacted due to higher sales of power in the spot market. JPL reported PAT of Rs 260 crore , down 47% on a YoY basis.
The company has maintained the commissioning schedule for projects in Angul (Orissa). The 1.6m MT SMS facility and 2m MT DRI plant are also expected to commercialise by April-13 and Sept-13 respectively. The process for signing the mining lease for the Utkal-B1 coal block (linked to Angul projects) is underway and the production from the mine is expected to be synchronised with the commissioning of the DRI plant. The two captive power units (270MW) to commission by end March 2013.
The company's present capex plans for FY13 (JSPL: Rs 4,000 crore and JPL: Rs 6000 crore) along with upcoming expansions is a big positive for the stock. Strong performance during the quarter was was led by strong volumes and lower costs in the steel business and QoQ increase in Jindal Power's (JPL) power tariffs. However, steel realisations and JPL's generation disappointed. We believe that all the negatives (such as termination of Bolivia project, Angul project delay and regulatory risks) have been priced in and expect limited downside from current levels. Further, streamlined expansion plans along with the much awaited commencement of international operations remains a key positive going forward. At a CMP of Rs 355, the stock trades at a PE multiple of 8.1x and 7.4x FY14E and FY15E consensus earnings estimates and below the mean band of its historical valuations. We recommend a BUY on the stock," says Ventura Securities research report.
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