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Jindal Steel & Power Ltd. (JSP) - Qtr. Update - Dtd. - February 13, 2013




Axis Capital Limited


14 Feb 2013





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Jindal Steel and Power’s (JSP) Q3 adjusted PAT of Rs 9.5 bn (excluding forex loss of Rs 0.8 bn) was below our estimate of Rs 10.6 bn. This was mainly on account of lower steel realizations (down 6% QoQ). Jindal Power’s performance was muted (PAT of Rs 2.6 bn, flat QoQ) as the 1 GW plant faced transmission constraints (PLF of 81% vs.102% YoY). Key near term trigger for the stock would be signing of mining lease by Odisha government for its Utkal captive coal block. Stock is currently under review due to uncertainty over sale of merchant power from captive mines. At CMP (Rs 390), the stock trades at P/E of 9x FY14E EPS of Rs 43.5 and 8x FY15E EPS of Rs 52. Jindal Power (1 GW): Chhattisgarh state faced bottlenecks in transmission capacity for "merchant power" post commissioning of NTPC's Sipat project. This impacted merchant realizations (Rs 3/Kwh, down 10% QoQ) as the company had to sell more power on exchanges (~30% of generation vs. 3-5% earlier) where the realizations are lower vs. SEBs. Outlook: With the addition of new transmission capacity, evacuation issues have been resolved for now (January PLF at ~101%) but realizations are likely to be depressed until the company is able to enter into new short term contracts with SEBs. Steel: EBIT declined 16% QoQ to Rs 9.6 bn despite higher volumes, mainly due to lower steel realizations. Average steel realization declined 6% QoQ to Rs 42,000/ton. Domestic steel volumes rose 10% QoQ to 733 kt, while pellet volumes rose 43% QoQ to 623 kt. Pellet volumes which had declined in H1 have returned to normal levels. Outlook: Domestic steel prices after declining in Q3 have started recovering led by improving Chinese prices, which will benefit Q4 realizations for JSPL. Regards, Bhavin Vithlani (Executive Director – Power & Cap Goods) Institutional Equity Research Axis Capital Ltd Tel.: + 91 22 4325 1144 Nitesh Jain (Sr VP – Materials) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1145 Jagdishwar Toppo (Executive Director – Materials) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1103

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