Jindal Steel & Power's Q4FY18 results (Outperformer) - A turnaround quarter
Q4FY18 result highlights- in-line operational results
Jindal Steel and Power (JSPL) turnaround this quarter and reported PBT of Rs1.06bn after recording losses for the last 12 quarters. It recorded in-line operational results with consol EBITDA of Rs21.4bn, up 33% qoq driven by improved profitability of its steel businesses at India. EBITDA ex-Jindal Power (JPL), stood at Rs18.7bn, up 50% qoq.
- JSPL’s standalone reported EBITDA of Rs15.2bn, up 65% qoq and EBITDA/t of Rs12,871, up 31% qoq. This was on account of higher steel volume (up 26% qoq to 1.18mt), higher steel prices (up 7% qoq), partially offset by higher RM cost (up 2% qoq). The higher start-up cost was offset by higher volume. It reverts to profits (PBT of Rs3.64bn in Q4 v/s loss of Rs1.4bn in Q3FY18) after recording losses for the last 13 quarters.
- Jindal Shadeed (100% subs at Oman) reported EBITDA/t of US$148 (Q3FY18: US$150). Higher volume (up 14% qoq to 0.48mt) led EBITDA to increase by 13% qoq to Rs4.6bn.
- JPL reported EBITDA of Rs2.65bn, down 26% qoq on account of lower volume (down 23% qoq to 2,310m units). The decline in volume was due to lack of availability of coal as well as higher price of coal which makes power sale uneconomical. EBITDA/unit fell by 4% qoq to Rs1.15.
Key Positives: Higher steel volumes, improved steel spreads
Key Negatives: High coal cost, lower power volume, continuation of losses at overseas mining subsidiaries
Impact on financials: Increase standalone FY19 EBITDA by 6% and FY20 by 8% to factor in higher steel prices, partly offset by lower volume. Higher overseas mining loss offset steel EBITDA to a certain extent
Valuation & view- Reiterate Outperformer with TP of Rs343
JSPL has successfully turnaround its steel business on account of higher steel prices coupled with volume growth. Though we have factored in ~8% lower steel prices in FY19 v/s Q4FY18, it still provides 38% standalone EBITDA CAGR over FY18-20E to Rs75.7bn (EBITDA/t of Rs10,900 in FY20e). The improving cash flows is expected to reduce net debt to Rs364bn in FY20e from Rs420bn in FY18. With increase in earnings, we increase our TP to Rs343 (earlier Rs315). Our SoTP-based target price of Rs343 is derived from Rs250/sh valuation of the company’s steel business (6.5x FY20E EV/EBITDA) and from DCF-based value of Rs92/sh for the power subsidiary (JPL). Reiterate Outperformer.
Jindal Steel & Power is engaged in the manufacture of rails, parallel flange beams and columns, plates and coils, angles and columns, rebars, wire rods, fabricated secions, speedfloor, semi-finished products, power, minerals and sponge iron.
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