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MOSL: JINDAL STEEL AND POWER (Buy)-Steel margins improved led by mix but volumes decline

Jindal Steel and Power: Steel margins improved led by mix but volumes decline; FCF yield very attractive; Reiterate Buy

(JSP IN, Mkt Cap USD1.8b, CMP INR130, TP INR287, 121% Upside, Buy)

 

• JSP’s 3QFY19 consolidated EBITDA declined 6% QoQ (+29% YoY) to INR20.1b led by a 6% decline in steel volumes in India and margin compression in Oman Steel & Jindal Power (JPL). But, the same was partly offset by improved margins in India. Interest cost declined 4% QoQ to INR10.4b, while Adj. PAT turned marginally negative at INR258m.
• Standalone numbers — margins improve due to mix but volumes declined: Steel sales declined 6% QoQ (+26% YoY) to 1.2mt as prices were volatile in Dec’19; due to the mix, average steel prices were higher. EBITDA per ton increased 9% QoQ to INR12,344 on higher spreads, despite steel prices weakening. EBITDA increased 2% QoQ (+61% YoY) to INR14.8b.
• Oman margins shrink: Steel sales declined 4% QoQ to 450ktm, while production recovered to 460kt (+21% QoQ, +10% YoY), after maintenance shutdown. EBITDA per ton slid again by 27% to USD71/t on volatility in steel prices. EBITDA declined 32% QoQ to INR2.2b.
• Jindal Power’s PLF improves but margins declined on cost pressure: PLF improved ~2pp QoQ to 35% and realization increased ~3% QoQ to INR4.27/kWh. But, margins declined 16% QoQ to INR1.2/kwh on rising cost of fuel. EBITDA was down 10% QoQ to INR2.7b.