Jindal Steel Ltd. share price target

Jindal Steel and Power Ltd. (JSPL), a part of the USD 22 billion diversified O. P. Jindal Group with the youngest son Mr. Naveen Jindal as a chairperson who transformed a moderately performing company into a world class organization. JSPL, established in the year 1952 is an industrial powerhouse and one of India's fastest growing and largest integrated steel manufacturers with a dominant presence in steel, power, mining and infrastructure sectors. The company operates some of India's most advanced steel manufacturing and power generation capacities of global scale through backward and forward integration spanning across the states of Chhattisgarh,...

JSP reduced debt by ~23% over last four years on the back of improved earnings, strong control on working capital and lean capex. It would continue to reduce debt by 10% for next couple of years as company remains focused on reviving its idle capacity and optimization of capex and working capital. We remain positive on JSP given the strong scope for increase in utilisation of idle steel and power capacity in India, lean capex and continuous reduction...

20 January 2020 JSPs result instills more confidence in the expected steel volume ramp-up with strong 34% YoY standalone volume growth to 1.6mt (+21% QoQ) in 3QFY20. Moreover, the sharp improvement in steel prices over the past two months, coupled with lower coking coal cost, has reinforced the near-term margins outlook. We estimate EBITDA/ton to improve ~30% QoQ to INR11,000/t in 4QFY20. Reiterating with an SOTP-based target price of INR210. EBITDA of INR18.1b (+11% QoQ) in 3QFY20 was 5% above our estimate due to higher volumes in the standalone business. Interest cost declined 3% QoQ to INR10b. Steel sales volumes were strong at 1.6mt (+21% QoQ, +34% YoY). Implied steel realization dropped to INR39,023/t (-16% QoQ), resulting in an EBITDA margin of ~INR8,400/t (-32% YoY, 11% QoQ) weakest in three years. EBITDA stood at INR13.5b (+8% QoQ, -9% YoY due to lower realizations), above our estimate of INR12.

20 December 2019 With restarting of the cost-efficient DRI plant (using coke oven gas), total metallic availability would increase to ~13,000tpd from Jan20 (from 10,000tpd currently), implying that annual steel production of ~4mnt would be achievable at Angul at a competitive cost. We, therefore, increase our FY21 standalone steel sales volume estimate to 6.2mnt, implying a 10% CAGR in FY19-21E. Lower raw material cost led by decline in coking coal and iron ore costs should partially offset the decline in steel prices seen in the past six months. JSP's power business remains highly underutilized with PLF hovering around 35%. JSP is well placed to secure PPAs as this plays out, which should boost its free cash flows. We expect JSP to generate significant consolidated free cash flow (as major capital expenditure is now behind), which will help reduce leverage INR365b net debt as of Sep19 with ~5x net debt/ EBITDA.

3 December 2019 The Supreme Court (SC) has deferred its verdict on JSPs case related to the offtake of iron ore from the Sarda mines. JSP though had made payment for ~12mt of iron ore (mainly fines) to Sarda and the state (royalty/taxes), thereby stating its claim on the related ore. JSP cited it sources iron ore fines at INR1,800-2,000/t (ex-mine). Thus, if the company were allowed to lift the 12mt of fines, it will lead to a benefit of INR22- 24b. Thus, availability of this 12mt would provide significant cushion against any possible disruption (accounting for 18-20 months of sourcing from merchant mines). In recent times, JSPLs stock has re-rated (up ~55% over the past two months) on expectations of (a) benefit of coal block allocation (Gare Palma), (b) possible positive verdict on the Sarda mines case and (c) a recovery in steel prices.

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...

Net debt fell 8% YoY in FY19: Led by strong operating cash flow (OCF) dues, net debt fell to Rs391bn. Statutory dues (on days basis to sales) reached to 25 days which as significantly higher, compared to its peers. Net debt has fallen by ~15% from peak level of Rs460bn in FY16. Led by stable earnings and lean...

Company continued to deliver strongly on debt. Net debt fell 4% QoQ/Rs14bn to Rs376bn due to higher FCF generation and proceeds of Rs5bn from conversion of options to shares by promoters. Management expects to maintain Q1 EBITDA margins in domestic steel operations due to lower fall in realisations (due to its better mix inclined towards Rails, structural and beams) than market, offset by reduction in iron ore and coal cost. Street remains doubtful on JSP's ability to generate ample FCF to meet its...

17%/Rs1,600/t QoQ (down 23%/Rs2,860/t) to Rs9,590 (PLe: Rs9,845), due to weaker than expected realisations. Angul (BF +BoF) steel operations stabilized in Q4FY19 with 88-90% utilisation levels. Given the weak operating performance and fall in realisations, we cut our EBITDA estimates by 0.9% for FY21E. We downgrade our rating to...

Steel business ramping up, power outlook improving; Reiterate Buy 4QFY19 consolidated EBITDA at INR18.5b (-11% QoQ) came in 12% below our estimate due to (1) higher coal costs for Jindal Power, (2) low margins at Oman Steel, and (3) shutdown at Wongawalli mine. Interest cost increased 11% QoQ to INR11.6b on rising interest rates and LC discounting. Cash PAT (pre-tax and MI) declined 35% QoQ to INR6.8b (v/s. our estimate of INR10.6b). Non-cash exceptions drag reported performance: JSP incurred write-offs of INR17.3b related to (1) additional coal penalty (INR13.5b), (2) electricity duty...