IGI Logo

Strong Q1 result; cost efficiency to come into play

Jindal Steel & Power (JSPL) reported higher-than-expected consol adj. EBITDA of ~Rs26.2bn (CentrumE: Rs21.6bn), up 20% QoQ and adj EBITDA/t of Rs14,283 (CentrumE: Rs11,217), up ~Rs3,248/t QoQ. The increase is largely due to combination of higher realisation and lower cost. During the quarter, JSP received approval for 2 coal mines out of 4 allocated to the company. This will help to replace e-auction coal supplies and after fully ramp up can meet 2/3rd of overall thermal coal requirement. Net Debt decreased to 15 years low to Rs68.1bn down 2% QoQ supported by strong operating cash flow. Company is under healthy state with net debt/EBITDA of 0.75x. Company is confident to complete expansion to 15mtpa by FY25 end. We reiterate BUY rating on the stock and believe company is better positioned with strong balancesheet and improvement in earnings visibility due to commissioning of various capex projects in FY24 and FY25. We value at 5.5x EV/EBITDA and arrive at target price of Rs764.

EBITDA up 20% due to higher realisation and lower cost

Consolidated revenue decreased 8% QoQ to Rs126bn on account of lower sales volume at 1.84mt down 9% QoQ partially offset by higher realisation/t QoQ up by Rs934 (1%). The raw material cost declined by 12% QoQ due to lower thermal coal prices, higher share of captive iron ore and high base in last quarter due to one off adjustment. As a result, consolidated adj EBITDA increased by 20% QoQ to Rs26.2bn. The exports remained steady and was booked at 8-10% higher realisation compared to domestic average during the quarter. It stood at 10% of total sales (vs 11% in Q4FY23). JSPL has commissioned 6mtpa pellet plant and also executed mining lease for Gare Palma IV/6 and Utkal C coal blocks which will drive cost efficiencies. Overseas EBITDA stood at Rs390mn.

Net Debt decreased QoQ; Net debt/EBITDA at 0.75x

During Q1FY24, it spent Rs19bn and guided capex of Rs56bn for FY24. JSPL commissioned 6mtpa pellet capacity in August 2023. The slab casting and Hot strip mill of 3mtpa is delayed and expected to commission by Q3FY24. While BF-BoF and along with 2nd phase of expansion at HSM, slurry pipeline and another 6mtpa pellet capacity to commission by FY25 end.

Reiterate BUY rating with target price of Rs764

We maintain our positive view on stock owing to several growth levers like: 1) volume growth of 14% CAGR over FY23-FY25 2) increased raw material integration (commissioning of Utkal C and Gare Palma IV coal mines in FY24 of 7.37mtpa, slurry pipeline, and increased pellet volume of 12mtpa) along with better product mix (HRC will be 56% of total mix) to augur well in earnings in next four years. The pellet plants and captive thermal coal production will enhance cost efficiencies and drive higher earnings. We estimate EBITDA/t of Rs14,000 to 15,000/t for FY24E and FY25E respectively. We value stock at 5.5x FY25E EV/EBITDA and arrive at target price of Rs764. Maintain to BUY rating

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer