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MOSL: JINDAL STEEL AND POWER (Buy)-Deleveraging to continue

JINDAL STEEL AND POWER: Deleveraging to continue

(JSP IN, Mkt Cap USD5.5b, CMP INR400, TP INR495, 24% Upside, Buy)

 

JPL's divestment to support a further decline in debt

• JSP's 1QFY22 result was strong as expected, with the highest ever EBITDA/t of INR28,098/t (7% above our estimate). However, standalone EBITDA fell 7% QoQ to INR45.3b due to a 16% QoQ decline in volume. Adjusted for the JPL divestment, net debt fell only 4% QoQ to INR152b due to an increase in working capital.
• We raise our FY22E EBITDA by 13% on expectations of higher steel prices in the fiscal. Strong cash flows, coupled with cash proceeds of INR30.1b from the JPL divestment, should lead to a fall in net debt to INR34.5b by FY23E, implying 0.3x FY23E EBITDA. We reiterate our Buy rating.

 

Lower volumes led to a decline in EBITDA, margin stays strong

• Consolidated (excluding JPL) revenue/EBITDA/PAT was 6%/4%/3% higher than our estimate at INR106b/INR45.4b/INR25.2b (nil/-9%/-12% QoQ). JSP has classified JPL as discontinued operations as it has entered into an agreement to sell the asset to Worldone.
• Steel (standalone) revenue/EBITDA/PAT was 4%/5%/6% higher than our estimate at INR103.8b/INR45.3b/INR26.6b (nil/-7%/-4% QoQ).
• Steel sales declined by 16% QoQ to 1.61mt (-2% lower than our estimate) due to weak domestic demand and congestion at ports limiting exports.