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Jindal Steel reported 4Q consol EBITDA of INR21.8bn, significantly lower than JMfe of INR25.6bn - driven primarily by a) comprehensive inventory review company-wide leading to a write-off / write down of INR2.5bn towards finished goods / raw material b) higher iron ore cost given increased spread between lumps and fines prices. The company thereby reported an EBITDA/t of INR10.5k/t - down INR1.3k/t QoQ, despite a sharp increase in realisation and volumes. The company reported a net debt of INR70bn as at end Q4 and expects to maintain 1.5x net debt/EBITDA through cycles. JSP has embarked on an ambitious capacity expansion plan (9.6mtpa to ~15.9mtpa) 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. 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 commencement of coal blocks - Utkal C, Utkal B1, B2 and Gare Palma IV/6. JSP expects last stage mining shortly in case of Utkal C while Gare Palma IV/6 is in an advanced stage. This will be sufficient to meet needs of Angul plants. 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. Maintain BUY.

* Higher raw material costs impact EBITDA: During 4QFY23, JSPL Standalone reported steel sales (incl. pig iron) of 2.03mn tons (up 6.8% QoQ). Export share increased to 11% in 4QFY23 vs 5% in 3QFY23. Pellet production decreased 3% QoQ to 1.90 mn tons while external sales stood at 42kt. JSPL reported revenues of INR134bn up 13.2% QoQ on the back of higher volumes and realizations. The company reported an EBITDA of INR21.4bn implying an EBITDA/t of INR10.5k/t. This was primarily on account of higher iron ore cost. The company reported a profit of INR7.9bn.

* Mixed bag performance from global subsidiaries: JSPL’s Mozambique mine prodn. stood at 0.98mn tons down 22% QoQ, coking coal sales stood at 0.18 mn tons. Mozambique operations reported EBITDA of US$9mn. South Africa operations reported prodn. of 0.12 mn tons and sales of .10 mn tons. The mine reported EBITDA of US$3mn for the quarter. Australia operations reported prodn. of 0.16 mn tons up 6% QoQ. Dispatches stood at 0.12mn tons while EBITDA stood at US$1mn for the quarter.

* Impending clearances to improve coal security: JSPL previously 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 upto 15.1mtpa. JSP expects last stage mining shortly in case of Utkal C while Gare Palma IV/6 is in an advanced stage. This will be sufficient to meet needs of Angul plants.

* Growth capex remains on track: The Company remains on track with its stated growth plans and is working towards making Angul Integrated steel complex more cost competitive. JSPL’s 6 mtpa pellet plant is under commissioning and this will help meet the requirements of Angul plant.

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