Q4FY23 Review: Jindal Steel & Power: Weak Q4; but well placed

17 May 2023 , 10:32 AM

JSPL’s Q4 standalone Ebitda missed IIFLe, impacted by inventory write-down of Rs2.5bn. Consolidated PAT saw further impact from Rs2.5bn impairment at Australian asset. Outlook over FY24-25 is good, even assuming subdued steel prices given the gains from ongoing expansion projects and operationalisation of thermal coal mines. With ND/Ebitda of 0.7x, balance sheet is ready for M&A.

Weak Q4 on inventory write-down and provisions in subs: 

Despite a beat on revenue (led by higher NSR), JSPL’s standalone Q4 Ebitda of Rs21.4bn missed IIFLe led entirely by inventory (RM and FG) write-down of ~Rs2.5bn. The write down came in despite QoQ uptick seen in prices of steel and iron ore. SA steel volumes stood at 2.03mt, supported by jump in exports (11% vs 5% QoQ). For consolidated entity, PAT was impacted by Rs2.5bn impairment taken by Australian entity and exceptional item of Rs1.54bn (write-off project advances and receivables.

Expansion projects and operationalisation of coal mines key triggers: 

Even as near-term steel price outlook remains subdued, JSPL is well placed to benefit from commissioning of 6mtpa pellet plant in Q1, slab caster and HSM in Q3 and of 4.25mtpa BF (incl. 6mtpa pellet) by end FY24. These would aid value addition, cost reduction and volume growth. Mgmt also expects to operationalise 3.5mtpa Utkal–C mine soon (awaiting final approval) followed by Gare Palma IV/6 and Utkal-B1&B2 — all of which will make it self-sufficient for thermal coal, and aid profitability.

Leverage at 0.7 ND/Ebitda; M&A a possibility: 

With consolidated net debt of Rs69.5bn, JSPL ended FY23 with ND/Ebitda of 0.7x. This should continue to fall despite ongoing capex. Given the strong balance sheet, management is reviewing the capital allocation policy and capex plans for next 3 years. Management also seemed keen on inorganic growth optionalities in the form of RINL and NMDC Steel. That said, they would not want to breach 1.5x ND/Ebitda even in a weak steel cycle.

Analysts of IIFL Capital Services maintain Buy with target price of Rs 664.