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Jindal Steel and Power (JSP) has undergone a significant transformation over the past few years, deleveraging its balance sheet through divestment of non-core operations. The company has embarked on an ambitious capacity expansion to emerge as a flats (steel products) heavy player. The Angul capex program is a low-hanging fruit offering low-cost, short-gestation and value-accretive brownfield expansion which will increase JSP’s crude steel capacity from 9.6 mtpa in FY22 to 15.9 mtpa by FY25. The capex will also help address the mismatch between finished steel capacity and crude steel capacity thereby reducing the proportion of semis going forward. The company’s coal security is expected to improve post acquisition of coal blocks - Utkal C, Utkal B1, B2 and Gare Palma IV/6. These blocks will ensure 100% self-sufficiency in thermal coal once fully ramped up. Further, it will offer saving on bid premium as well as logistic cost saving given the mines’ close proximity to JSP’s plant. JSP has also recently acquired Monnet Power’s 1050MW thermal power plant under construction in slump sale under IBC for INR4.1bn. The company plans to invest INR20bn to make the plant operational and expect operational efficiencies to accrue from FY25. With a strong balance sheet to support growth, increasing raw material security, and low cost of production, JSP remains well positioned to withstand cyclical challenges – subject to execution risk. Re-iterate BUY.

* Angul expansion to transform JSP into a flats heavy player: JSP is pursuing an ambitious capex program amounting ~INR240bn over FY22-27E. The capex program primarily comprises Angul expansion (~INR221bn) which will increase crude steel capacity from 9.6 mtpa in FY22 to 15.9 mtpa by FY25 and expenses towards 1,050MW power plant acquired from Monnet power for INR4.1bn (~INR 20bn). The Angul capex is a lowhanging fruit offering low-cost, short-gestation and value-accretive brownfield expansion. The ongoing expansion plan would a) increased proportion of flat products b) reduce mismatch between finished and crude steel capacity c) Cost efficiencies to aid margins.

* Least leveraged balance sheet among major steel makers: JSP’s balance sheet has turned from one of the most leveraged three years back to the least leveraged or strongest among all the primary steel producers. The company repaid a large portion of its debt through divestment of non-core operations/FCF. Going forward, despite an ambitious capex plan we believe the company will continue to generate FCF which will aid debt reduction. JSP’s net debt is expected to reduce from INR 71bn to INR43bn by FY25.

* Improved coal security post acquisition of coal blocks: JSP has won four coal blocks in the 13th and 14th tranche of auctions, namely – Utkal C, Utkal B1, B2 and Gare Palma IV/6. These blocks have ~500 mn tons of extractable reserves and ~15 mtpa capacity. All the coal blocks have forest, environment clearance in place and majority of land in possession suggesting that production can start within a short period of time once all necessary approvals are received. These mines will make JSP 100% self-sufficient in thermal coal once fully ramped up. Further, it will offer saving on bid premium over Coal India’s linkage and E-auction coal. These mines will also offer logistic cost saving given the mines’ close proximity to JSP’s plant.

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