Jindal Steel & Power Ltd: Earnings growth to resume post FY14 (ARA)

India Infoline News Service | Mumbai |

JSPL has set its long term vision to position itself as a company with large scale, enhanced profitability and long-term sustainability.

CMP Rs235, Target Rs276, Upside 17.5%

JSPL’s financial performance in FY13 was torpid on account of weak power prices and one-off related to its investment in Bolivia. The company reinstated its ‘Vision 2020’ target and is vigorously implementing measures to achieve its target of 15mtpa of steel making capacity and 10,000MW of power generation capacity by 2020. In the near term, JSPL plans to add 1.6mtpa of steel making capacity in Angul in FY14 and 2mtpa of steel making in Oman in FY15. On the power front, JPL is expected to commission its 2,400MW plant in a phased manner by FY15. Standalone steel numbers were impacted by high raw material costs and loss on its Bolivia investments. Power production under JPL was the lowest in the last four years due to the grid failure in North-East. The Shaddeed plant operated at rated capacity and registered a 55% yoy growth in its bottom-line. JSPL signed FSA with MCL for supply of coal to power plants at Angul for 5 years, reducing the doubts over its operations.


JSPL’s stock has underperformed over the last one year on account of issues related to allocation of coal blocks. Selling has been further intensified due to the subdued domestic steel demand and a decline in spot power realizations. We believe earnings would be boosted by the commissioning of the new capacities. The power capacities at Angul are expected to be ready for commercial operational in Q2 FY14, followed by the 1.6mtpa steel plant at Angul by Q4 FY14 and the 2,400MW power plant in FY15. We believe, the next phase of growth for the company would be driven by the Angul steel plant and Tamnar II power plant. We have lowered our earnings estimate to account for the weak power prices prevailing in the country and delay in commissioning of the coal block. We estimate consolidated earnings to remain flat in FY14 and then jump 20% yoy in FY15 on the back of higher output from the Angul facility. The growth in earnings would take centre- stage and lead to re-rating of the stock. We maintain our BUY recommendation on the stock with a revised price target of Rs276.

Financial summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues 182,086 198,068 206,452 257,057
yoy growth (%) 38.9 8.8 4.2 24.5
Operating profit 67,932 59,944 68,224 79,981
OPM (%)    37.3   30.3   33.0   31.1
Pre-exceptional PAT 39,649 29,101 29,645 35,180
Reported PAT 39,649 29,101 29,645 35,180
yoy growth (%) 6.5 (26.6) 1.9 18.7
EPS (Rs)   42.4   31.1   31.7   37.6
P/E (x)   5.5   7.5   7.4   6.2
EV/EBITDA (x)   5.7   7.7   7.3   5.9
Debt/Equity (x)   0.9    1.2   1.2   0.9
RoE (%)   24.6   14.8   13.1   13.7
RoCE (%)   16.8   10.9   9.5   10.6
Source: Company, India Infoline Research
BSE 248.55 [4.65] ([1.84]%)
NSE 248.50 [4.90] ([1.93]%)

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