Among metal counters, Jindal Steel and Power Ltd (or JSPL) has relatively better growth visibility due to timely expansion and contribution from the steel and power businesses. This is also reflected in its March quarter results, which were better than expectations helped, by strong performance of the steel business. Besides, valuations look favourable as the stock, at Rs 501, is trading at about 9.5 times earnings and 1.65 times book value, based on FY13 estimates. The value of its power assets (2,400Mw) at one times its book value, in addition to the value of its mines in Indonesia and Australia, itself are considered worth Rs 450-480 per share of JSPL. Thus, most analysts have a ‘buy’ rating on the stock.
Q4: Ahead of expectations
For the quarter ended March, the company reported a strong 42 per cent growth in revenue, led by robust volume growth across product categories. To some extent, growth in revenue was also led by the power segment, which accounted for 22 per cent of total revenues. During the quarter, the company’s power output increased 42 per cent while units sold jumped 86 per cent compared to the year-ago period.
In steel, JSPL’s realisations were also up, especially in the long product category (accounting for more than 65 per cent of total volumes) where prices were up six to seven per cent. However, operating profit margins shrunk by almost 985 basis points leading to a mere 10.8 per cent growth in operating profits. Margins were lower due to higher royalty on captive coal production. This is also a reason that Jindal Power’s cost per unit increased significantly to Rs 1.4 per unit as against Rs 0.83 per unit in the March 2011 quarter. This also had its rub-off on adjusted net profit, which grew 16.5 per cent to Rs 1,167 crore.
Stable outlook
Over the next two years, growth will be largely driven by ongoing expansions, both in the power and steel businesses along with ramp up of existing capacities. In steel, the company is producing 3.5-4 lakh tonnes of pellet, which can be ramped up to five million tonnes. Besides, in FY14, analysts are expecting JSPL’s 1.6-million-tonne steel plant in Angul (Odisha) to become operational, which will add to revenues. Estimates suggest that at full capacity the Angul plant could add Rs 3,000 crore to JSPL’s net profit.
In power, growth will come from a 1,350Mw project, whose six units of 135Mw each are operational and remaining are expected to get operational in the coming months. Analysts expect JSPL’s power sales to increase from 6,000 million units in FY12 to 15,000 million units in FY14. Even at Rs 4 per unit, this could add about Rs 3,500-3,800 crore to the company’s top line.
At Jindal Power, which has an operational capacity of 1,000 Mw, expansion of the 2,400 Mw power plant is on schedule and the management is expecting the first unit to become operational around June-July 2013 and contribute from FY14 onwards. Notably, the ongoing power projects have secured coal linkages, thereby limiting the key risk. Contribution from the overseas coal mines in Mozambique and Indonesia could provide further upside in the coming years, which analysts are not factoring in now.
| FY13: IMPROVING PROFITABILITY | |||||
| In Rs crore | Q4FY12 | % chg | FY12 | % chg | FY13E |
| Net sales | 5,465 | 42.0 | 18,151 | 38.6 | 20,665 |
| Ebitda | 1,914 | 10.8 | 6,987 | 9.3 | 8,648 |
| Ebitda (%) | 35.0 | -1,058 bps | 38.5 | -1,080 bps | 41.8 |
| Interest | 129 | 43.2 | 506 | 50.8 | 909 |
| Depreciation | 396 | 18.4 | 1,386 | 20.5 | 1,632 |
| Adjusted PAT | 1,167 | 16.5 | 4,002 | 6.6 | 4,896 |
| PAT is adjusted for extra-ordinary items Consolidated financials E: Estimates Source: Capitaline, Edelweiss Securities | |||||
