JSPL higher by 2% on higher domestic steel prices

India Infoline News Service | Mumbai | December 07, 2017 12:07 IST

EBITDA per tonne likely to rise by Rs1,000 due to improved volumes.

Jindal Steel and Power (JSPL), domestic steel prices are expected to rise by Rs1,500-2,000 per tonne in the near-term due to rise in raw material prices, according to the management. However, margins will remain unaffected as cost increases would be pushed through.  The management also stated that the basic oxygen furnace (BOF) at Angul is likely to be commissioned sometime in the middle of December 2017.
Once the BOF is commissioned, the capacity at the Angul plant would go up to 5 million tonnes per annum but the management expects that it would run at 60% utilization. The increased volumes from the capacity expansion at Angul is expected to lead to an increase in EBITDA per tonne by Rs1,000 from ~Rs9,000/tonne (in FY17).
JSPL currently trading at Rs162.6, up by Rs 4 or 2.52% from its previous closing of Rs158.6 on the BSE. The stock touched a 52 week high of Rs178.5 on 28-Nov-2017 and a 52 week low of Rs64.95 on 27-Dec-2016. Last one week high and low of the scrip stood at Rs177.1 and Rs157.75 respectively.
JSPL, part of the OP Jindal Group, is engaged in manufacturing of steel and power. The iron and steel and power businesses contributed ~84% and ~16% to the top-line, respectively, in FY17.

We expect the effects of government’s protectionist measures like anti-dumping duty (ADD) to continue to improve domestic steel prices. The recent addition of 1.4MTPA capacity in Oman and planned expansion in Odisha is also expected to boost steel sales volumes. In the power business as well we see improved earnings visibility due to the long-term PPAs signed with KSEB. Consequently, we expect JSPLs revenues to recover sharply, growing 23.7% CAGR over FY17-19E. The resultant 113bps improvement in EBITDA margin to 23.3% is expected to result in PAT turning positive in FY19E.

***Note: This is a NSE Chart



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