Prabhudas Lilladher is bullish on Jindal Steel and Power has recommended buy rating on the stock with a target price of Rs 170 in its research report dated November 04, 2019.
Prabhudas Lilladher's research report on Jindal Steel and Power
Jindal Steel and Power (JSP) won Gare Palma IV/1 coal block in auction at Rs230/t. The coal block has extraction capacity of 6mtpa with reserves of ~160mnt. Before cancellation by the honorable Supreme Court in September-2014, the block was owned and operated by JSP to meet coal requirement of its sponge iron ore and CPP at Raigarh plant. Benefitted by proximity of mine to its plant and owned infrastructure, JSP was best placed to win the auction. We see the bid as a significant positive development for JSP as this would lower its coal cost by Rs1,300/t (for 6mtpa of coal) along with much needed raw material security in wake of severe shortage of domestic coal.
We expect coal block to add Rs46bn (Rs46/share) to the equity value based on EV/EBITDA of 5.5x to the assumed cost saving of Rs8.3bn. Led by key positive change on cost and RM security, sharp increase in production and strong scope for improvement in Jindal Power, we upgrade the stock to BUY with TP of Rs170.
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