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MOSL: JINDAL STEEL & POWER (Buy)-Management meeting update

JINDAL STEEL & POWER: Management meeting update

(JSP IN, Mkt Cap USD4.8b, CMP INR357, TP INR478, 34% Upside, Buy)

 

Cautious near-term demand, but pent-up demand inevitable

• Near-term demand is tepid and demand decline is seen (especially last month) due to (a) the ban on construction in the NCR region due to severe pollution levels, (b) an extended monsoon, (c) weak sentiment in the international market - consumers are adopting the wait-and-watch policy, and (d) sufficient inventory lying with traders, who, in a falling market, would try and liquidate rather than accumulate.
• However, pent-up demand is inevitable, as seen since the ebbing of the first COVID wave.

 Pricing remains under pressure in the near term; 4Q outlook positive

• The management highlighted that the pricing for longs products has corrected by INR4000/t. Rebar has corrected to INR58,000/t (from INR62,000/t in Nov). We believe the trade is operating at INR56,000/t.
• Flats are currently being exported at ~USD815/t CFR, while China is offering USD780/t. On the other hand, domestic prices stand at USD902/t. The management expects a price reduction for flats in the domestic market, in line with the reduction in longs.
• We expect a price recovery in 4Q as pent-up demand and unfinished projects are revived.
• However, the resurgence of COVID remains a key concern, with fears related to the Omicron variant leading to the postponement of consumption.