MOSL: JINDAL STEEL & POWER (Buy)-Production ramp-up encouraging; Volume growth at inflection

Jindal Steel & Power: Production ramp-up encouraging; Volume growth at inflection; maintain Buy

(JSP IN, Mkt Cap USD3.7b, CMP INR272, TP INR361, 33% Upside, Buy)

We visited Jindal Steel and Power (JSP)’s Angul, Raigarh and Tamnar facilities. Key takeaways from our visit:

• Angul – crude steel production ramping up well: The newly-commissioned blast oxygen furnace (BOF) is ramping up well. Hot metal from the blast furnace (BF) is transferred to the BOF through torpedoes. The BOF is operating at 45 minutes per batch, which will be gradually optimized to 35-40 minutes per batch. It has already touched a peak of 27 heats per day (against capacity of 36-41 at optimized rate). Crude steel production was 165kt in January, and is likely to increase to 280kt in February, with a target of 400ktpm by May 2018. By this time, the second 2.5mtpa billet caster will have commissioned. This will take told casting capacity from 3.7mtpa to 6.2mtpa and pave the way for full ramp-up of steel-making capacity. Bottlenecks will shift to rolling capacity at Angul. However, excess semis will be rolled in Patratu site in Jharkhand.
• Raigarh – production rate improving; awaiting approval from Indian Railways: Crude steel production was ~280kt in January. A similar production is expected in February, despite fewer days. A total production of 810kt is expected in 4QFY18. Rail production is about 200kt against nameplate capacity of 600kt. DFCC and Iran are key orders. JSP is expecting approval from Indian Railways. If successful, another 140kt of order is possible. The outlook for plate business is also improving with increasing activity in gas pipeline orders in India.