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MOSL: JSPL (Neutral) - S/A & Oman’s operating performance improved - power rates dragged JPL




Motilal Oswal Securities Ltd.


30 Jan 2014





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Jindal Steel & Power (JSP IN, Mkt Cap USD3.8b, CMP INR254, Neutral) Sanjay Jain (SanjayJain@MotilalOswal.com) / Pavas Pethia (Pavas.Pethia@MotilalOswal.com ) S/A & Oman’s operating performance improved; power rates dragged JPL; GNM consolidation dragged PAT JSP’s consolidated adjusted PAT increased 2% QoQ to INR5.6b. Although consolidated EBITDA at INR17b (+9% QoQ) was 11% ahead of estimates, the adjusted PAT was below estimates due to (1) higher interest cost, (2) consolidation of Gujarat NRE’s Australian coking coal assets (GNM) and (3) higher tax rate. The performance of Oman HBI unit was impressive, while Jindal Power’s profitability was hurt by lower power rates. Standalone revenue increased 3% QoQ helped by 3% increase in sales volumes and 4% increase in steel realization. Pellet sales were reduced due to higher internal consumption in steel making. Margins improved as power generation increased 34% QoQ to 1.6b kwh. Jindal Power’s PAT declined 11% QoQ to INR2.7b as average power realization declined 10% QoQ to INR3.1/kwh. Financial losses in overseas subsidiaries reduced significantly from ~INR1b in 2QFY14 to INR19m in 3QFY14 due to better performance of Oman and South African coal mines. New pellet plant at Barbil, Angul and Oman steel plant and Tamnar-II will drive growth of operating cash flows as they all will be commissioned by end-FY14. However, higher interest cost and depreciation will drag earning’s growth. As a combined impact of GNM losses and higher interest costs, EPS is cut 9/7% for FY14E/FY15E respectively. Net debt has increased 5% QoQ to INR315b due to acceleration of capex. We value the stock at INR270 based on SOTP. Maintain Neutral.

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