Jindal Steel & Power Ltd (Q4 FY13)

India Infoline News Service | Mumbai |

JSPL’s standalone revenue increased 1% yoy and 10.3% qoq to Rs42.1bn, quite higher than our estimate of Rs36.5bn.

CMP Rs315, Target Rs407, Upside 29.3%

  • Standalone revenue of Rs42.1bn was quite higher than our estimate of Rs36.5bn, on the back of strong steel volumes

  • JSPL managed to register a strong volume growth of 23.3% yoy and 23.9% qoq to 0.91mn tons due to liquidation of inventory

  • Realisations declined sharply due to subdued demand and excess supply in the domestic market

  • Standalone power production declined on a qoq due to issues at Angul

  • Operating profit of Rs10.4bn was lower than our estimate due to jump in raw material costs

  • JPL’s power production improved after two weak quarters, registering a PLF of 99.5%

  • Earnings to take centre stage; Maintain BUY with a revised 9-month price target of Rs407  

Result table (Standalone)
(Rs mn) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 42,137 41,740 1.0 38,209 10.3
Material costs (17,971) (17,130) 4.9 (13,218) 36.0
Power and fuel costs (2,436) (2,773) (12.1) (2,368) 2.9
Personnel costs (1,237) (1,183) 4.6 (1,079) 14.6
Other overheads (10,131) (7,563) 34.0 (8,764) 15.6
Operating profit 10,363 13,093 (20.8) 12,781 (18.9)
OPM (%) 24.6 31.4 (677) bps 33.4 (886) bps
Depreciation (3,081) (2,364) 30.3 (2,543) 21.2
Interest (2,369) (2,490) (4.9) (2,876) (17.6)
Other income 1,358 1,412 (3.8) 39 -
PBT 6,271 9,650 (35.0) 7,401 (15.3)
Tax (1,496) (1,814) (17.5) (2,196) (31.9)
Effective tax rate (%) 23.9 18.8   29.7  
Adjusted PAT 4,775 7,836 (39.1) 5,205 (8.3)
Adj. PAT margin (%) 11.3 18.8 (744) bps 13.6 (229) bps
Reported PAT 4,775 7,836 (39.1) 5,205 (8.3)
Ann. EPS (Rs) 20.4 33.5 (39.1) 22.3 (8.3)
Source: Company, India Infoline Research

Strong volume growth offsets the sharp decline in realisations

JSPL’s standalone revenue increased 1% yoy and 10.3% qoq to Rs42.1bn, quite higher than our estimate of Rs36.5bn. The outperformance was largely due to strong steel sales volume. Steel sales volume of 0.91mn tons was higher than our estimate of 0.74mn tons on the back of liquidation of previous quarter inventory. The company managed to sell its accumulated inventory over the previous three quarter during Q4 FY13. Pellet sales too remained strong during the quarter at 0.66mn tons. Production of pellet stood above the 1mn ton level. Blended realizations for the company declined sharply due to subdued domestic demand and increase in supplies. Most of the steel companies tried to liquidate their inventory levels during the quarter leading to pressure on prices. Power production volumes declined from 1,544mn units in Q3 FY13 to 1,477mn units due to issues at its Angul plant. External power sales decreased 14.3% qoq to 517mn units. Average power realization in the standalone entity remained flat at Rs3.73/unit during the quarter.


Production and sales performance
(Tons) Q4 FY13  Q4 FY12 % yoy Q3 FY13 % qoq
Production




Steel products 791,236 762,971 3.7 775,416 2.0
Pellets 1,038,290 1,071,770 (3.1) 965,950 7.5
Power (MW) 1,477 1,417 4.2 1,544 (4.3)
Sales




Steel products 908,736 736,838 23.3 733,641 23.9
Pellets 657,722 690,566 (4.8) 623,247 5.5
Power (MW) 517 557 (7.2) 603 (14.3)
Source: Company, India Infoline Research

Margins shrink sharply due to jump in raw material costs and lower realisations

Operating profit during the quarter decreased 20.8% yoy to Rs10.3bn, lower than our estimate of Rs13.3bn. The underperformance in operating profit was largely due to lower realisation and a jump in raw material costs. OPM for the quarter shrunk by 677bps qoq to 24.6% its lowest level over the last five years. Raw material costs as a % of sales increased from 34.6% in Q3 FY13 to 42.6% during the quarter. The increase in raw material costs per ton was due to purchase of sponge iron from external market. The increase in margins was further intensified by a jump in other expenditure. Other expenditure as a % of sales increased from 22.9% in Q3 FY13 to 24%. On a segmental basis, EBIT margins for the steel business shrunk from 23.7% in Q3 FY13 to 16.2% in Q4 FY13. Power division EBIT margins declined marginally from 39.7% to 38.3% on account of lower production. Costs per unit of power increased from Rs2.2 in Q3 FY13 to Rs2.3 in Q4 FY13.


Cost Analysis (Standalone)
(As a % of sales) Q4 FY13  Q4 FY12 bps yoy Q4 FY13 bps qoq
Material costs 42.6 41.0 161 34.6 805
Power and fuel costs 5.8 6.6 (86) 6.2 (41)
Personnel Costs 2.9 2.8 10 2.8 11
Other overheads 24.0
BSE 165.15 2.10 (1.29%)
NSE 165.20 1.85 (1.13%)

***Note: This is a NSE Chart

 

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