Report
Ashish Kejriwal

Jindal Steel & Power's Q3FY18 results (Outperformer) - On a recovery path

Q3FY18 result highlights- in-line operational results

Jindal Steel and Power (JSPL) recorded in-line operational results with consolidated EBITDA of Rs16.1bn, up 17% qoq driven by improved profitability of its steel businesses at both India and Oman. EBITDA ex-JPL, stood at Rs12.5bn, up 22% qoq. Consolidated net loss reduced to Rs 2.7bn from loss of Rs 3.5bn in Q2FY18.

  • JSPL’s standalone reported EBITDA of Rs9.2bn, up 18% qoq and derived EBITDA/t of Rs9,799, up 4% qoq. This was on account of 13% qoq steel volume growth to 0.94mt, higher spreads in steel and pellet businesses, partly offset by high opex. Net loss reduced to Rs737m v/s loss of Rs1.5bn in Q2FY18.
  • Jindal Shadeed (100% subsidiary at Oman)’s operating performance improved on account of better product mix and higher spreads. EBITDA stood at Rs4.1bn, up 15% qoq and EBITDA/t stood at Rs9,705, up 21% qoq.
  • Jindal Power (JPL), 96.4% subsidiary of JSPL, reported EBITDA of Rs3.56bn, up 3% qoq on account of 23% qoq volume growth. However, EBITDA/unit fell to Rs1.2 from Rs1.4 in Q2FY18 due to higher coal cost.
  • Other overseas subsidiaries continue to report losses at EBITDA, albeit at a lower level. (loss of Rs782mn v/s Rs1.1bn in Q2FY18)
  • JSPL paid ~Rs1.38bn penalty on account of excess iron ore production at its Odisha mines after the Supreme Court verdict. The company paid the penalty under protest and have not accounted in P&L. 

Key Positives: Higher steel and power volumes, improved steel spreads

Key Negatives: High operating expenditure, high coal cost

Valuation & view- Reiterate Outperformer with TP of Rs315

We expect JSPL to turnaround and report profits from Q4FY18 on account of incremental volume coming in from Angul plant and better spreads in steel business. With the company deleveraging from FY19E onwards, we estimate net debt/EBITDA will reduce from 10.4x in FY17 to 3.7x in FY20E. Our SoTP-based target price of Rs315 is derived from Rs218/sh valuation of the company’s steel business (6.5x FY20E EV/EBITDA) and from DCF-based value of Rs97/sh for the power subsidiary (JPL). Reiterate Outperformer.

Underlying
Jindal Steel & Power Ltd.

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.

Provider
IDFC Securities
IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions,  both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement  amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

Analysts
Ashish Kejriwal

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