Q2FY24 Review: Jindal Steel & Power: Q2 a miss; expansion sees further delay

1 Nov 2023 , 01:03 PM

JSPL’s Q2 consolidated Ebitda at Rs22.86bn missed estimated on sharper fall in NSR for India business which led to Ebitda/t falling to Rs11,503 in Q2. Management enhanced the scope of the growth capex including development of coal mines, and addition of CRM and plate mill but highlighted further 2 quarters to delay in completion to end FY25/H1FY26. Also overall outlay is now larger at Rs310bn (vs Rs180bn planned in FY23 and Rs240bn estimated in Q1FY24). Analysts of IIFL Capital Services cut Ebitda estimate by 10-12% for FY24-25 on lower volume and higher coking coal cost assumptions. Retain BUY with TP of Rs754. 

Q2FY24 Ebitda miss led by lower NSR for SA entity: 

JSPL’s SA Ebitda stood at Rs23bn (Rs22.4bn adjusted for forex gain) – lower than IIFe led by a sharp Rs6,800/t QoQ fall in NSR. This more than offset the savings from US$70/t reduction in coking coal prices, lower iron ore prices and fall in other expenses. Ebitda/t fell by Rs2,917 QoQ to stand at Rs11,503 in Q2. Sales volume stood at 2.01mt in Q2 on production of 1.9mt with 0.11mt of inventory liquidation. Consolidated Ebitda of Rs22.86bn was further impacted by Rs264m (stable QoQ) loss at all overseas subs entirely led by Australia operations. 

Growth capex sees further delays and cost escalation: 

The ongoing capacity expansion to reach 15.9mtpa capacity will now be completed at a capex of Rs310bn vs Rs240bn estimated in Q1FY24 and Rs180bn in FY23. Of the incremental Rs70bn, Rs20bn is towards the coal mines and a part is for a 1.2mtpa CRM complex, 0.5mtpa plate mill and enabling railway infrastructure. Completion timelines are now extended by another two quarters to end FY25 indicating the volume growth would be slower in FY25 and FY26 vs earlier estimates. 

Analysts of IIFL Capital Services cut estimates by ~10% for FY24-25: 

Gains from ramp up of captive coal mines (7.4mtpa PRC) would aid profitability over H2FY24- FY25 while allowing higher production from the CGP-DRI plant in FY25. However, delay in commissioning of expansion projects and higher coking coal price assumptions drives 10-12% cut to FY24-25 Ebitda estimate. Net debt rose to Rs73bn in H1 but should fall steadily over FY25-26 to reach a net cash position by FY26.