IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends ‘Buy’ on Jindal Steel & Power.
JSPL’s consolidated PAT growth of 4% YoY in 3QFY12 was lower than estimates given sustained losses in the captive power business and cost escalation in the steel business. A sharp increase in pellet sales YoY and higher utilisation at Shadeed Steel (Oman) partly offset this, the report said.
3QFY12 steel production was up 30% YoY and sales increased 18% YoY. Accumulated inventory is expected to be liquidated over the next two quarters. During 3QFY12, JSPL sourced HBI from Oman Steel to overcome capacity shortfall at its Raigarh unit, the report added.
The brokerage said that Jindal Power’s (JPL) profit was flat YoY, as expected. However, the disappointment in the captive power business continues with JSPL making sustained losses here; breakeven of the first three units of 10 units (135MW each) is seen in 4QFY12, IIFL stated.
“We maintain our view that JSPL would benefit from the vertically integrated model in the long run and expect the stock to re-rate from here on, driven by progressive commissioning of the new units and 2) uptick in power prices,” IIFL said.
The report was published by IIFL’s Institutional Equities Research desk.