ICICI Direct is bullish on Jindal Steel and Power has recommended buy rating on the stock with a target price of Rs 215 in its research report dated January 10, 2019.
ICICI Direct's research report on Jindal Steel and Power
Jindal Steel and Power (JSPL) management highlighted the stress points emerging from i) contraction in spreads in domestic business, ii) ramp up pangs leading to domestic volume miss in Q3FY19E, iii) sharp contraction in spreads in the Oman business, and iv) continued shortage of coal impeding full operations of Tamnar 1. All these make Q3FY19E EBITDA lot less prospective with a 12.9% QoQ drop expected now. Also, what seems consuming some part of management bandwidth is handling foreign currency loans (~US$2bn) as Oman EBITDA endures the impact of compressing spreads. While interest servicing on foreign loans is still being made possible from Oman EBITDA, efforts are required to perhaps ensure better sustainability. Management continues to guide for Rs90bn of debt reduction (over FY19/20E) albeit conceding the risks to commodity price volatility to the baseline forecast. Capex remains pegged at Rs10bn p.a.
We have rebased FY19/20E domestic steel volumes to 5/6mnte from 5.5/6.5mnte earlier and adjusted for the sharp decline in Oman EBITDA. While acknowledging cascading near-term risks to earnings and valuations, continued focus on debt deleveraging, inexpensive valuations (~0.5x FY20E book) allow us to be relatively more constructive on the name in the sector. We maintain BUY with a revised target of Rs 215/share.
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