Q3FY24 Review: Jindal Steel & Power: Healthy Q3; strong outlook

2 Feb 2024 , 11:24 PM

JSPL’s Q3FY24 SA Ebitda of Rs27.2bn beat IIFLe despite weak volume of 1.8mt aided by stronger NSR (mix) and utilisaiton of 1mt of captive thermal coal. Ramp of recently commissioned HSM should aid volume growth in Q4 while higher captive coal production will aid margins. FY25-26 would see gains from commissioning of 6.6mtpa expansion through the year and ramp up of production from two operational coal mines (7.4mt PRC). Debt inched up in Q3 due to WC build but should see liquidation in Q4. Analysts of IIFL Capital Services raise FY24 Ebitda estimate by 8% and retain their BUY rating with TP of Rs835 (5.5x FY26 EV/Ebitda). 

Captive coal drives healthy Q3: 

JSPL’s SA Q3FY24 Ebitda stood at Rs27.2bn (Ebitda/t of Rs15,021) beat IIFLe even as steel volume at 1.81mt missed estimates. ~Rs3,500/t QoQ jump in NSR (better mix), captive sourcing of 1mt of thermal coal from Gare Palma IV/6 mine, and more streamlined operations at Raigarh more than offset the US$32/t increase in coking coal costs QoQ. Consolidated Ebitda of Rs28.4bn was supported by better profitability at overseas operations. 

Q424/FY25 to see gains from higher volume: 

JSPL recently commissioned the 6mtpa HSM at Angul with ramp up likely over the next few quarters. Tie up with RINL to source slabs from their BF-3 which is currently shut would ensure supply of ~1mt of slabs (as per media reports) till captive hot metal production ramps up. The 4.6mtpa BF-2 along with 3.3mtpa BoF is on track for completion by Q2FY25 and would be followed by BoF-2 and DRI (1.8mtpa) by end FY25. Apart from higher volumes this will drive higher value addition in larger share from flats. 

Mine ramp up to drive down costs: 

Captive thermal coal production should see further ramp up in Q4 and should likely see full 7.4mt production in FY25 from Gare Palma IV/6 and Utkal-C. Utkal–B1 and B2 mines can potentially add further 8mtpa coal at peak run rate once approvals are received. Apart from driving down costs, when combined with commissioning of 1050MW ACPP-2 by mid FY25, this would enable more than sufficient coal or power beyond that required for internal DRI operations.