IGI Logo

Hit by higher coal prices

Jindal Steel & Power (JSPL) reported lower-than-expected consol EBITDA of Rs30.7bn (CentrumE: Rs37bn). Management informed that this included one off non-cash of ~Rs3bn as the company has expensed some equipment which were lying as inventories in the balance sheet. Adjusted to that, EBITDA was Rs33.7bn, up 2% QoQ and EBITDA/t of Rs16,203, down Rs1,985/t QoQ. Despite much higher long steel prices prevailing in the market in Q4FY22, JSPL’s derived blended steel realisation was up Rs809/t QoQ. EBITDA was hit due to higher coal (coking and thermal) prices and lower benefits of captive coking coal from Australia which offset benefits of operating leverage. The sale process of its 96% subsidiary, Jindal Power (JPL) to Worldone (promoter group entity) has completed in May and JSPL received ~Rs30bn cash now. Though debt will reduce further but with its capex plans, JSPL should become a net cash company in FY24. JSPL can fund 6mtpa capacity expansion through internal accruals over FY22-27E. We decrease our FY23E/FY24E EBITDA by 14%/8% to factor in lower volume, higher coking coal cost and impact of export duty in FY23. We value JSPL at 4.5x (earlier 5.5x) FY24E EV/EBITDA to arrive at a TP of Rs483 (earlier Rs659). Due to cheap valuation, we recommend BUY.

Higher coal cost affected profitability; EBITDA/t fell to ~Rs16,000

Higher coking coal (increased COP by ~Rs2,250/t QoQ) and thermal coal (increased CoP by ~Rs1,000/t QoQ) more than offset marginal higher steel prices (up Rs809/t QoQ) and benefits of operating leverage. Sales volume was up 14% QoQ to 2.08mt. Despite sharp hike in long product prices in market, JSPL’s blended realisation increase was very low. Additionally, due to blending issue and higher coking coal inventory stuck at ports, the company was unable to take full advantage of captive coking coal. As a result, it recorded adjusted consol EBITDA of Rs33.7bn, up 2% QoQ and EBITDA/t of Rs16,203, down Rs1,9855/t QoQ. EBITDA (Consol-standalone) was up by ~Rs1bn QoQ to Rs2.43bn. JSPL has written off Rs4.06bn (shown as exceptional items) which was on account of some mining assets, plant & equipments, water charges etc

Net debt reduced to Rs88.8bn; to be net debt free in FY24E

Net debt reduced by Rs21bn QoQ to Rs88.8bn at FY22-end. JSPL received Rs30bn as it concluded sale of Jindal Power in May 2022. With expectation of reducing operating performance and increasing capex, we believe that JSPL will become net debt free in FY24 only. The capex on 6mtpa brownfield expansion (expected to be commissioned by FY25) has started and Management guides capex of Rs47bn in FY23 and Rs43bn in FY24.

Cheap valuation; reiterate BUY

We expect lower volume, higher coal prices should offset higher steel prices in Q1FY23 and JSPL should record marginal decrease in adj EBITDA/t QoQ in Q1FY23. With sale of Jindal Power being concluded, JSPL becomes pure play steel company with focus on India operation. The commissioning of coal mines and expansion of steel plant by FY25 is positive for JSPL. Reiterate BUY with TP of Rs483.

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