20 January 2012
3QFY12 Results Update | Sector: Metals
Jindal Steel & Power
BSE SENSEX S&P CNX
CMP: INR518 TP: INR636 Buy
Bloomberg JSP IN
Equity Shares (m) 934.1
52-Week Range (INR) 724/436
1,6,12 Rel. Perf. (%) -2/-8/-13
M.Cap. (INR b) 483.9
M.Cap. (USD b) 9.6
Consolidated adjusted PAT grew 4% YoY to INR10.2b, below our estimate of INR11b. Reported consolidated
PAT was INR9.96b, which included an exceptional gain of INR259m and forex loss of INR500m. JSPL has not
adopted the new guidelines for amortization of forex loss over a longer period.
Jindal Power's revenue and PAT for the quarter were higher than we had estimated - at INR8b and INR4.8b,
respectively. Power generation was 2,255mkwh at PLF of 102%. Power rate is estimated at INR3.94/kwh.
Two captive units of 135MW have been commissioned at Dongamahua, Chhattisgarh in January 2012. Also,
these units have received open access permissions to sell power at merchant rates. Merchant tariffs are
likely to be >INR4/kwh, while the cost is ~INR2.2/kwh. The improved margins and higher volumes are likely
to drive earnings.
Power rates on surplus power sales to Odisha state from the 270MW CPP have been revised upwards by
INR0.3/kwh to INR3.05/kwh.
Steel production during the quarter was a record 757k tons although sales were down 1% QoQ to 591k tons.
Steel inventories built as of December 2011 have since been liquidated at higher realizations. We expect
steel sales volumes to be higher and margins to be superior in 4QFY12.
Earnings growth is likely to moderate post 4QFY12 due to delays in the Angul steel and coal mine projects. We
are cutting our EPS estimate for FY13 by 9% to INR49.9. Earnings are likely to grow 12.6% in FY13. The stock
trades at 10.4x FY13E EPS. Maintain Buy.
Sanjay Jain (SanjayJain@MotilalOswal.com);Tel: +9122 3982 5412
Pavas Pethia (Pavas.Pethia@MotilalOswal.com); Tel: +9122 3982 5413
Jindal Steel & Power
Standalone: EBITDA below estimate; Pellet and Steel sales volumes
disappoints despite strong growth in steel production
Adjusted EBITDA declined 12% QoQ (+12% YoY) to INR 10.5b (below est. of
INR12.1b) due to lower than estimated sales of steel products, pellet and power.
Forex loss of INR500m has been adjusted from other expenditure.
Net sales declined 1% QoQ to INR 33b due to lower volumes. Company sold 464kt
pellets (against our est. of 589kt) and 38.5kt of metalics during the quarter.
Adjusted PAT declined 28% QoQ (-8% YoY) to INR 4.61b.
Sales tonnage of steel products remained flat QoQ at 591kt (below est. of 611kt).
Steel production however grew 20% QoQ and 30% YoY to 757kt. There was
accumulation of inventories of INR3.7b.
Pellet production grew marginally by 4% QoQ to 938kt vs est. of 1.1m tons. Pellet
plant has still not achieved full capacity utilization of 4.5mtpa. Power generation
from CPP grew 25% QoQ to 1182 Mkwh vs. est. of 1300 MKwh. Correspondingly;
power sales from CPP were lower at 350Mkwh vs est. of 498Mkwh.
2x135MW CPP units one each at Angul and Raigarh were commissioned on 18th
January, 2012. With this 4 units at Raigarh and 2 units at Angul have been
commissioned so far.
Best ever steel production (kt) Pellets sales dropped due to higher captive consumption
Steel product s a l es Steel product producti on Meta ll i cs Pel l ets
623 608 630
454 460 454 492 506
0 12 93
20 January 2012 2
Jindal Steel & Power
Iron and steel overseas: INR1.7b EBIT
EBIT from steel segment of overseas business i.e. Shadeed sponge iron in Oman
and South African coal mines was flat QoQ at INR1.67b.
The profit from Oman unit was USD13m and from South African coal was USD18m.
Jindal Power's Revenue and PAT were above estimates at INR 8b and INR 4.8b
respectively. Power generation was 2,255M Kwh at PLF of 102%.Merchant realization
stood at INR4.06/kwh while average realization was ~INR3.97/kwh.
Jindal Power: PAT and Realization Best ever PLF of 102%
PAT (INR b) Rea li zati on (INR/kwh) Genera ti on (M Kwh) PLF (%)
6.7 6.5 6.4 101 101 101 99 102
96 95 97 89 93
5.2 5.1 84
5.0 4.6 4.5 4.3 70
4.0 4.0 4.1 3.9 4.0 3.9 59
5.7 6.5 5.1 5.8 5.2 5.6 4.6 4.9 5.0 4.5
E: MOSL Estimates; Note: Quarterly data (except for Gross generation; Net Sales and PAT) are assumed for Analysis
20 January 2012 3
Jindal Steel & Power
Steel sales volumes are expected to be stronger and margins superior in
2 units of 135MW captive power capacity at Dongamahua, Chhattisgarh have been
commissioned in January 2012. Also, these units have received open access
permissions to sell power at merchant rates. Merchant tariffs are expected to be
>INR4/kwh, while the costs is ~INR2.2/kwh. The improved margins and higher
volumes are likely to drive earnings.
Power rates on surplus power sales to Odisha state from 270MW CPP have been
revised upwards by Paise30/kwh to INR3.05/kwh.
Steel production during the quarter was record 757kt although sales were down
1% QoQ to 591kt. Steel inventories built as of Dec-11 has since been liquidated at
higher realizations. Steel sales volumes are expected to be stronger and margins
superior in 4QFY12.
Cutting FY13 earnings 9% due to delay in Angul project; Earnings growth is
JSPL achieved record steel production of 757kt in 3QFY12. Steel production is
unlikely to grow further in FY13 because Raigarh plant has achieved peak
production and Angul steel project is further delayed to December 2012. We are
cutting FY13 steel and DRI production volumes by 650kt and 180kt respectively to
factor the delays in Angul steel project.
Pellet plant has been producing around 800-900kt on quarterly basis for last 4
quarter and is unable to achieve 4.5mtpa run-rate. Therefore, we are cutting Pellet
production by 400kt to 4m tons for FY13.
Jindal power's average power rate realization has been revised upwards from
INR3.7/kwh to INR4/kwh to factor improvement in merchant power rates for short
term contracts. For Captive power plants at Angul, rate for surplus power sale to
Odisha has been increased by 30paise to INR3.05/kwh. For Raigarh CPP surplus
power sales, the rates are revised from INR2.37/kwh to INR3.7/kwh due to open
access to merchant power market.
As a result, FY13 EPS is cut 9% to INR49.9. Although 4QFY12 earnings will be
substantially higher QoQ due to liquidation of steel inventory and revision of
power rates, earning growth will moderate thereafter due to delay in Angul steel
and coal mine projects.
20 January 2012 4
Jindal Steel & Power
Standalone: Increase in inventory due to lackluster steel demand; higher
quantity of HBI was imported from Shadeed Oman
Indian steel business imported HBI from Shadeed (Oman) to produce steel. As a
result, steel production increased 20% QoQ to 756kt and achieved run rate of
3mtpa first time.
Steel sales volumes declined 1% QoQ to 591kt due to lacklustre demand. Steel
inventories increased by 100kt QoQ to ~300kt. Total inventories stood at INR15b
at end of 3QFY12 Vs INR10b in 2QFY12 due to sluggish demand and logistical issues.
Company sold 150kt of iron ore fines in this quarter as well.
Forex loss of INR 530m accounted in other expenditure. Total outstanding ECB are
USD400m. Debt in standalone entity stood at INR150b while consolidated debt
stood at INR170b at end of 3QFY12.
Company plans total Capex of INR100b till FY13 including INR40b for Tamnar II
Fixed assets stood at INR100b while CWIP stood at INR100b. Apparently, the Capex
during 3Q was approx. INR5.4b.
Power generation was 2,255M Kwh at PLF of 102%. Merchant realization stood at
INR4.06/kwh while average realization was ~INR3.97/kwh
Green field Projects: Angul steel and coal mine project delayed 3 months;
plans to commission 2x600MW at Tamnar-II by March 2014
Angul steel project: 2mtpa gas based Sponge iron is expected to get commissioned
by December 2012 i.e. a delay of 3 months. Import component of DRI equipment
is yet to arrive. We expect steel production to start in a meaningful way only in
Angul Coal mines: Production is now expected to start operations by July 2012 i.e.
a delay of 3 months.
Tamnar II: Project work re-started two months ago and company now expects
2x600MW to get operational by March 2014 and remaining 2 units with a lag of 4
months each. This is a delay of 1 year from the original schedule. JPL has already
received coal linkage for 2x600MW and applied for linkage for the rest 2 units.
Importing coal from international subsidiaries remains the fallback option.
Goda and Dumka: JPL plans to order BTG in next 3-4 months, as process of land
acquisition and environment clearance is still going on.
Captive power Plants - Units at Raigarh stabilized and running at 90% PLF;
expect to commission balance 4 units by March 2012
JSPL has commissioned all 4 units (of 135MW each) of captive power plants at
Raigarh and 2 (out 6) units at Angul. Three units (2 at Raigarh and 1 at Angul) have
been commissioned in the month of January and are gradually ramping up. Old 3
units are stabilised and running at 90% PLF and expected to contribute significantly
20 January 2012 5
Jindal Steel & Power
Total loss from these units amount to ~INR800m in 9MFY12. Company expects to
breakeven in another 6 months. Fuel cost at 1,350MW project is estimated to be
~INR1.8/Kwh. The fuel cost may fall to INR1.25-1.4/kwh after start of Angul coal
Company is targeting to commission rest 4 units of 135MW each by March 2012 (in
order to receive tax benefits). However profitability will improve only when Angul
captive coal mines start production; which is getting delayed. Company now
expects mine to start operation in another 6 months.
Company has spent ~INR60b for this 1350MW CPP and capitalised ~INR48b.
Overseas operations: expect USD40m annual PAT for Shadeed; Indonesia
coal mine delayed by 12 months
Oman: USD40m PAT is expected for the year, plant is running at 85% utilization. At
present, company is partly exporting HBI to Indian operations for steel production.
Bolivia: Management expects more clarity on the Bolivian operation only in the
next quarter. There are certain differences with the government and at present
discussions are going on.
South Africa: Expect 1m tons of coal production in FY13. The GCV of the coal is 6300
No clarity on exact timeline for Zimbabwe and Mozambique coal mine operations.
Indonesia: Commencing of production at Indonesian mine is pushed to 4QFY13
against earlier plan of March 2012.
20 January 2012 6
Jindal Steel & Power
Jindal Steel & Power: an investment profile
Company description Key investment risks
JSP currently has 3mtpa of operational steelmaking Unexpected fall in steel prices and delay in project
capacity at Raigarh. JSP has one of the best iron ore and execution would adversely impact earnings.
coal resources in India. JSP offers the best insulation Recent developments
from iron ore and coking coal prices among Indian steel JSP commissioned 3 units of 135 MW in January 2012.
producers. The company has rich iron ore and coal With this total 6 units have been commissioned in
resources overseas, mainly in Bolivia, Mozambique, series of total 10 units of 135 MW.
South Africa and Indonesia. Valuation and view
Key investment arguments Stock is trading at PE of 10.4 x FY13. Maintain Buy.
JSP has planned to increase its steel capacity 4x over Sector view
the next four years. It is augmenting its existing Global steel demands still remains subdued due to
3mtpa capacity, by setting up a 1.6mtpa module at European economic problems and slow down in
Angul. It plans to add two more modules of 1.6mtpa construction in China. Certain raw material side
each at Angul and Raigarh, using this technology. At issues have prevented costs correction for steel mills
Patratu (Jharkhand), It will produce 3mtpa of steel thereby forcing them to cut production. Global crude
in phase-I. steel production is down 11% to 115m tons in
Only 1/3rd of the 12mtpa steel capacity will be November 2011 from peak production of 130m tons
exposed to coking coal imports. in May 2011. Global economic growth slow down
Jindal Power, JSP's 96.43% subsidiary, plans to mainly in China continues to cloud demand outlook.
increase capacity by 10x in 10 years by adding Indian real steel demand too has slowed down
4,380MW of thermal power projects in Chhattisgarh growing only 4.2% YoY to 45.2m tons during April-
and Jharkhand at a capex of USD5.3b and 6,100MW November 2011. We believe Indian demand will still
of hydro power projects in Arunachal Pradesh at a grow 7-8% over couple of years. Depreciation of INR
capex of USD8.1b. against USD and appreciating Yuan has increased
Most of the power projects are secured for fuel competitiveness of Indian producer's vis-à-vis their
through captive sources. Though JSP's earnings are Chinese counterparts, therefore lowering Chinese
likely to be driven by strong project pipeline. imports threat.
Comparative valuations EPS: MOSL forecast v/s consensus (INR)
JSPL SAIL Tata Steel MOSL Consensus Variation
P/E (x) FY12E 11.7 11.5 11.4 Forecast Forecast (%)
FY13E 10.4 11.6 7.9 FY12 44.4 55.0 -19.4
P/BV (x) FY12E 2.7 1.0 1.6 FY13 49.9 60.0 -16.8
FY13E 2.2 0.9 1.4
EV/Sales (x) FY12E 3.6 1.1 0.7 Target price and recommendation
FY13E 3.4 1.2 0.6 Current Target Upside Reco.
EV/EBITDA (x) FY12E 9.1 8.3 6.3 Price (INR) Price (INR) (%)
FY13E 8.5 8.0 5.3 518 636 22.7 Buy
Stock performance (1 year)
Ji nda l Steel & Power Sens ex - Reba s ed
Shareholding pattern (%) 675
Dec-11 Sep-11 Dec-10
Promoter 58.6 58.6 58.4
Domestic Inst 7.8 7.5 2.3
Foreign 22.3 22.9 24.9
Jan-11 Apr-11 Jul -11 Oct-11 Ja n-12
Others 11.3 11.1 14.4
20 January 2012 7
Jindal Steel & Power
Financials and Valuation
20 January 2012 8
Jindal Steel & Power
N O T E S
20 January 2012 9
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1. Analyst ownership of the stock No
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