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Weak volumes and lower realization drag performance; earnings set to improve in 2HFY25

* Revenue stood at INR112b (YoY/QoQ: -9% / -18%), which was below our estimate of INR133b. Revenue was impacted due to weak volumes and lower realization.

* Production volume stood at 1.97mt (YoY/QoQ: +4% / -4%). The QoQ volume decline was led by a planned shutdown at the Raigarh plant. Sales volume came in at 1.85mt (YoY/QoQ: -8%/ -12%) against our est. of 2.11mt.

*  ASP stood at INR60,612/t (vs our est. of INR63,202/t), flat YoY and -7% QoQ.

* EBITDA stood at INR22b (YoY/QoQ: -4% /-23%) and was 9% below our est. of INR24b. EBITDA/t came in at INR11,893/t (YoY/QoQ: +5% / -12%) against our est. of INR11,454/t.

* APAT stood at INR9b (YoY/QoQ: -38% /-36%) vs. our est. of INR11b.

* For 1HFY25, revenue came flat YoY at INR248b and EBITDA at INR50b (+3% YoY). The company reported an APAT of INR22b (-28% YoY) during 1HFY25.

* Consolidated net debt stood at INR124b as of 2QFY25 vs. INR104b in 1QFY25 and the increase was driven by an expansion capex at the Angul project. Net debt/EBITDA was at 1.21x as of 2QFY25 vs 1.0x in 1QFY25.

*  The total capex for the quarter was INR26b.

Expansion status and update

* Jindal Steel & Power (JSP) will increase its total finished steel capacity from 7.25mt to 13.75mt by FY26 at a total capex of INR310b.

* Slurry pipeline – On track to commission in FY25 end; 80% of the project is completed as of now.

* JSP received all the approvals for Utkal B1 mines. It is in the advanced stage of opening and will likely start operations by 4QFY25.

* Utkal B2 is under clearance and is likely to open in FY25. Management plans to raise the EC limit of both Utkal B1 & B2 to 5MT each.

* The company is targeting to increase the EC limit of Gare Palma IV/6 coal mine to 5MTPA by FY25-end from 4MTPA.

Highlights from the management commentary

* Coking coal cost declined USD35/t during the quarter and management expects further moderation of USD20-25/t in 3QFY25. Earnings are expected to be better in 2HFY25 as compared to 1HFY25, driven by better volumes and realization.

* The company implemented a price hike of INR1,000-2,000/t across products in Q3. The management indicated that the prices are holding up on account of healthy demand following the festive season.

* Management expects iron ore costs to moderate to align with steel prices; otherwise, spot spreads may compress.

* India remained a net steel importer in 2QFY25.

Valuation and view

* While 2Q FY25 EBITDA was weak primarily due to muted price and lower volume, the 2HFY25 outlook remains bright. We expect JSP to report Revenue/EBITDA growth of +24/26% YoY for 2HFY25, owing to improving prices and demand coupled with muted cost.

* We cut our Revenue/EBITDA and APAT estimate by 7/4/5% for FY25 over weak performance in 1HFY25. We have retained our estimates for FY26 and FY27. The ongoing capex would lead to more value-added products, which would yield better profitability and margins in the longer term.

* We reiterate our BUY rating with a TP of INR1200, based on 6.5x on EV/EBITDA on Sep’26 estimate. The stock is currently trading at 4.9x on EV/EBITDA and 1.4x on P/B FY27 estimate.

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