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Edelweiss Financial
Jindal Steel & Power (Buy)
Target: ₹500
CMP: ₹409.50
We see Jindal Steel & Power (JSPL) at a vantage point due to its: i) fully ramped up operations; ii) continued cost efficiencies; and iii) focus on deleveraging. Besides, the company is poised to reap benefits of the steel upcycle given its focus on value-added products, which will strengthen EBITDA/t to ₹16,500 through to FY22.
Factoring our revised steel price estimates, we are raising FY22E EBITDA by 14 per cent. While we expect earnings to plateau, the substantial debt reduction that the company has achieved from FY19 will drive the stock’s re-rating. Maintain ‘Buy’ with revised Target Price of ₹500 (earlier ₹378).
We expect JSPL’s standalone EBITDA/t to sustain at INR16,500 for FY22 due to the focus on value-added products, volume uptick and cost efficiencies (particularly at the Angul plant). Besides, current uptick in the power business is an added positive.
We are positive on the deleveraging focus and expect net debt to reduce further as capex intensity is low. On valuations, the stock is trading below peers and its own trading average.
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