Buy Jindal Steel and Power; target of Rs 650: Motilal Oswal

Motilal Oswal's research report on Jindal Steel and Power

JSP reported revenue of INR137b, down 5% YoY and 7% below our estimate of INR148b. ASP improved 3% QoQ to INR67,448/t. Sales volumes stood at 2.03mt, down 2% YoY and up 7% QoQ. Exports improved to 11% of total sales (5% in 3QFY23). EBITDA stood at INR22b, down 29% YoY and 22% below our estimate of INR28b. EBITDA was affected by an inventory write-down of INR2.5b and high iron ore costs. EBITDA/t stood at INR10,775 v/s estimate of INR12,597. APAT fell 68% YoY to INR6b (our estimate INR14b) as depreciation expenses rose due to an impairment charge of INR2.5b in its Australian subsidiary. Net debt stood at INR67b (down ~INR20b in FY23) and the net debt-toEBITDA ratio stood at a comfortable level of 0.7x. JSP further reduced the debt in Apr’23 and gross debt as of Apr’23 stood at ~INR90b. JSP has declared a final dividend of INR2 per share for FY23. FY23 revenue/EBITDA/APAT stood at INR527b/INR99b/INR37b (YoY: +3%/- 36%/-58%). FY23 sales stood at 7.7mt (up 1% YoY). The 6mt pellet plant and 3mt HSM Phase I are expected to be operational in next one-two quarters, which will drive better product mix and cost savings.

Outlook

We maintain our BUY rating on JSP with a revised TP of INR650, based on 5.5x FY24E EV/EBITDA. We believe JSP’s focused approach on leverage, along with capacity expansion, should augur well. The stock is currently trading at 4.9x FY24E EV/EBTIDA.

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