Jindal Steel & Power Ltd. share price target

4QFY18 consol. EBITDA grew 38% YoY (+33% QoQ) to INR21.4b (est. of INR19.5b), led by strong growth in steel volumes and higher steel margins. Adj. PAT turned positive to INR1.3b (est. of a loss of INR1.2b). Interest cost rose 24% YoY to INR10.7b, despite net debt declining by INR35b to INR420b. FY18 consol. EBITDA increased 39% YoY to INR65b and adj. loss after tax reduced from INR19b to INR8b. Cash profit more than doubled to INR26b. Standalone:Steel sales increased 26% QoQ (28% YoY) to 1.18mt. EBITDA per ton rose 31% QoQ to INR12,871, largely driven by higher spreads and some benefit of operating leverage. EBITDA increased 66% YoY to INR15.2b.

Further to our Research report dated October 18th 2017, wherein we had recommended a BUY at the then price of Rs. 161.20, the share price had reached its 52 week high to Rs. 294.30 increased by ~83% after the third quarter results for the FY18. The company has been steadily moving towards new highs with strong financial outlook. Healthy demand is expected for steel domestically...

The newly-commissioned blast oxygen furnace (BOF) is ramping up well. Hot metal from the blast furnace (BF) is transferred to the BOF through torpedoes. The BOF is operating at 45 minutes per batch, which will be gradually optimized to 35-40 minutes per batch. It has already touched a peak of 27 heats per day (against capacity of 36-41 at optimized rate). Crude steel production was 165kt in January, and is likely to increase to 280kt in February, with a target of 400ktpm by May 2018. By this time, the second 2.5mtpa billet caster will have commissioned. This will take told casting capacity from 3.7mtpa to 6.2mtpa and pave the way for full ramp-up of steel-making capacity. Bottlenecks will shift to rolling capacity at Angul. However, excess semis will be rolled in Patratu site in Jharkhand.

Jindal Steel & Power Ltd Q2FY18 results comment Revenue grew by 7.63% to Rs. 6035.15 Cr in Q2FY18 when compared to the previous quarter. Also, it increased by 34.55% when compared with Q2FY17.

JPL to benefit from 350MW PPAs; Maintain Buy Jindal Steel & Power's (JSP) 2QFY18 consolidated EBITDA increased 62% YoY to INR13.7b (est. of INR12.4b). Oman steel plants' performance was very strong, as EBITDA increased 73% QoQ to INR3.6b, driven by full capacity utilization and higher spreads. Standalone business' performance was boosted by strong pellet sales, whereas steel volumes disappointed. Interest cost has inched up on restructuring of loans. Jindal Power's PLF was low due to seasonal factors and shortage of coal....

Revenue decreased by 7.94% to Rs. 5607.27 Cr in Q1FY18 when compared to the previous quarter Revenue decreased by 7.94% to Rs. 5607.27 Cr in Q1FY18 when compared to the previous quarter

COMPANY UPDATE

We met the top management of Jindal Steel & Power (JSPL) to get an insight into its business operations and future plans. The company shared its outlook with respect to its different business verticals viz. steel, power and overseas ventures (mining operations in Australia, Mozambique, South Africa and the Oman steel plant). Going forward, over the medium to longer term horizon, growth is primarily likely to come from the expanded upcoming steel making capacity at Angul, Odisha. Overseas mining operation EBITDA to adequately cover its interest outgo...

Revenue rose by 18.09% to Rs. 5296.8 Cr in Q3FY17 when compared to the previous quarter. Also, it rose by 28.15% when compared with Q3FY16.

1QFY17: Shutdown impacts volumes; Oman EBITDA doubles YoY Standalone (SA) steel sales volumes fell 8% YoY (-23% QoQ) to 780kt due to shutdown. Pellet sales jumped 7x YoY to 700kt on attractive exports market.SA steel-only EBITDA/t increased ~INR1,100 QoQ to INR7,435 on higher steel prices. S/A EBITDA declined 2% QoQ to ~INR6.6b due to lower volumes.Jindal Power (JPL) PLF declined 300bp QoQ to 29%. EBITDA/kWh improved 50% QoQ to INR0.9 on account of commencement of 200MW Kerala PPA.Other subsidiaries’ EBITDA rose 6% YoY (+45% QoQ) to INR3.2b, led by Oman. Oman EBITDA was up 2x YoY to INR2.2b driven by steel prices.Networth more than doubled, boosted by ~INR208b on revaluation of land, plant, machinery and buildings. Hence, depreciation was higher. Net debt was broadly flat QoQ at ~INR464b.

JPL’s PLF is estimated to improve on Kerala PPA. SA earnings will be driven by volume pick- up in the second half, while margins will be stable despite steel price increase. We continue to value the stock on asset-based approach (Exhibit 8) because of underutilized power assets in the near term and investment in under-construction steel project. We are raising TP to INR88/share (earlier: INR75). Maintain Neutral.