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Deleveraged balance sheet to aid growth capex

JSPL reported consol. EBITDA of INR30.7bn, significantly below JMfe of INR37.3bn primarily due to surging coking coal cost. Standalone EBITDA came in at INR28.3bn down 11% QoQ, implying an EBITDA/ton of INR13.6k. JSPL expects to maintain exports at FY22 levels despite imposition of export duty as it intends to focus on valued added segments and products not covered by export duty. The company has guided for a sales volume target of 8.2 mn tons during FY23. Further, the company recently won four coal blocks, namely – Utkal C, Utkal B1, Utkal B2 and Gare Palma IV/6. Once operational, these mines will help meet entire thermal coal requirement and enhance fuel security. International operations have also been ramping up with profitability expected to improve going forward. Consolidated net debt has declined further to INR89bn in 4QFY22 (from INR110bn in Dec’21). The company has concluded the divestment of Jindal Power Limited (JPL) on 30th May 2022 and has received a consideration of INR30bn. The divestment improves balance sheet strength; taking JSPL a step closer to its vision of becoming a net debt free company in FY23.The company has also embarked on a capacity expansion plan to augment its capacities from 9.6mtpa (post CTO) to 15.9mtpa by FY25E. Divestment of non-core businesses, de-leveraging of balance sheet and growth capex will drive earnings trajectory going forward. Maintain BUY.

Higher coking coal costs lead to lower EBITDA/ton despite higher realisations: During 4QFY22, JSPL Standalone reported steel sales (incl. pig iron) of 2.08mn tons (up 14% QoQ). Export share for JSPL increased to 29% in 4QFY22 vs 23% in 3Q. Higher internal consumption resulted in lower external sales of pellets at 0.14mn tons. Higher realisations and volumes led to JSPL reporting revenues of INR138bn. However, sharp rise in coking coal cost, resulted in EBITDA being reported at INR28.3bn, implying an EBITDA/ton of INR13.6k. PAT declined 11.2% QoQ to INR15.2bn primarily due to lower operating profits.

Production from Kasia mine have initiated: JSPL was declared the preferred bidder for Kasia Iron Ore Mine in Odisha. Kasia Mine has a large geological resource of 278mn tons and it consists of an average Fe grade of approx. 62.5%. Kasia is an operational mine having an Environmental Clearance (EC) of 7.5 MTPA. Production from Kasia mine has started earnestly with plans to ramp-up production to 5 mn ton in FY23. Iron ore from Kasia will significantly boost JSPL’s raw material security.

Coal blocks improve coal security: JSPL has recently won four coal blocks, namely – Utkal C, Utkal B1, Utkal B2 and Gare Palma IV/6. These blocks have cumulative reserves of ~500 mn tons and clearance to produce up to 15.1mtpa. Once operational, these mines will help JSPL meet 100% of its thermal coal requirement. The Company plans to start production in the next 12-15 months and these mines will help enhance fuel security.

JPL Divestment concluded: JSPL has divested Jindal Power (JPL) on 30th May 2022 receiving INR30bn in total from Worldone Private Limited (acquirer) as part of the transaction. The divestment improves balance sheet strength; taking JSP a step closer to its vision of becoming a Net Debt free Company in FY23. The divestment also boosts JSP’s ESG scores with significant reduction in its carbon footprint.

Deleveraging picks up pace: Robust operational cash flows, improving working capital, declining finance cost, and lower capex have all contributed towards continuous deleveraging in 4QFY22. Consolidated net debt has declined further to INR89bn in 4QFY22 (from INR110bn in Dec’21). For the reported quarter, finance costs have declined by 20.8% QoQ. The company has concluded the divestment of Jindal Power Limited (JPL) on 30th May 2022 and has received a consideration of INR30bn. The divestment improves balance sheet strength; taking JSPL a step closer to its vision of becoming a net debt free company in FY23.

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