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We visited JSPL’s Angul plant to study its progress with its capex plan and gather more business insights. Key points: 1) Potential exists for 30mtpa steelmaking capacity at Angul; 2) Various packages of the 6mpta expansion project on schedule; 3) Cost reduction efforts are underway to maintain its competitive edge; and 4) Angul steel plant’s operating flexibility likely to result in cost advantage at all times.

In our view, the ongoing 6mtpa expansion is on track, with a potential for further expansion at lower marginal cost. The balance sheet has enough headroom for low intensity organic growth. We maintain BUY on the stock with an unchanged TP of INR575 on 5.5x FY23E EBITDA.

Capex plan progressing well

During our visit, noted that the various modules of the 6mtpa expansion are broadly on track. Key points: 1) Structural work pertaining to 6mtpa Pellet plant#1 is in progress; 2) Plant building for 3mtpa HSM mill Phase#1 is being erected; 3) Soil investigation/testing for the second blast furnace is ongoing; and 4) The detailed engineering for Pellet plant and HSM mill is complete. Our interaction with the plant team suggests that the major equipment has been ordered and would be commissioned as per the timelines. Besides, the plant has a surplus coke and Coal Gasification Plant (CGP) capacity to partially cater to the requirement of the new blast furnace and the DRI plant, respectively.

Cost initiatives to further improve competitiveness

There are several initiatives being pursued to maintain the cost edge. Three key initiatives being: 1) Coal Dry Quenching (CDQ) plant - likely to reduce coke consumption by 25-30kg/t of hot metal. One plant has been commissioned and the second one is likely to be commissioned soon; 2) Slurry pipeline (to be commissioned in September 2023) - likely to reduce logistics cost of iron ore by INR750/t; and 3) Pellet plant on site would enable savings as the by-product gas from the CGP can be used for heating instead of fuel oil.

Outlook & Valuations: Progressing well; Maintain ‘BUY’

We learn from our visit that while the near-term capex of 6mtpa is on track, the company has a vision of increasing its capacity up to 30mtpa, thus making it the largest single-site steel plant in the world. In our view, the existing land parcel and the logistics network are adequate to achieve this. Besides, the organic expansion is likely to come up at progressively lower costs, enabling increased shareholder returns at every stage.

As a result of aggressive debt reduction over the past two years, the balance sheet has enough headroom for such an expansion, notwithstanding the cash generated from the business that can be ploughed back for funding such expansion. We maintain our positive stance on the stock. Maintain BUY with an unchanged TP of INR575 on 5.5x FY23E EBITDA.

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