EUR 120.00 For Business Accounts Only

MOSL: JINDAL STEEL AND POWER (Buy)-Weakest margin in three years, but expect sharp improvement in 4QFY20

(JSP IN, Mkt Cap USD2.6b, CMP INR179, TP INR210, 17% Upside, Buy)

** JSP’s result instills more confidence in the expected steel volume ramp-up with strong 34% YoY standalone volume growth to 1.6mt (+21% QoQ) in 3QFY20.

** Moreover, the sharp improvement in steel prices over the past two months, coupled with lower coking coal cost, has reinforced the near-term margins outlook. We estimate EBITDA/ton to improve ~30% QoQ to INR11,000/t in 4QFY20. Reiterating Buy with an SOTP-based target price of INR210.

Weak margin due to lower realization
** Consolidated: Consol. EBITDA of INR18.1b (+11% QoQ) in 3QFY20 was 5% above our estimate due to higher volumes in the standalone business. Interest cost declined 3% QoQ to INR10b. Cash profit (pre-tax and MI) was up 33% QoQ to INR8.17b. PAT loss stood at INR2.2b (our estimate: loss of INR3.3b). Net debt (excluding acceptances) reduced by ~INR10b QoQ to INR355b.

** Standalone: Steel sales volumes were strong at 1.6mt (+21% QoQ, +34% YoY). Implied steel realization dropped to INR39,023/t (-16% QoQ), resulting in an EBITDA margin of ~INR8,400/t (-32% YoY, 11% QoQ) – weakest in three years. EBITDA stood at INR13.5b (+8% QoQ, -9% YoY due to lower realizations), above our estimate of INR12.2b, due to lower-than-expected costs.

** Jindal Power: Generation was at 1.9b units (-27% YoY). Realization stood at INR4.56/kWh (+1% QoQ, +9% YoY). EBITDA fell 14% QoQ (-6% YoY) to INR2.6b (our estimate: INR2.2b). EBITDA/unit was at INR1.5 (+5% QoQ/32% YoY).

** Oman: Steel sales were at 570kt (+27% QoQ). EBITDA was at INR2.3b (our estimate: INR1.5b).