IIFL Securities

Jindal Steel & Power (Buy)

Target: ₹482

CMP: ₹441.80

Jindal Steel & Power has delivered strong volume CAGR of 17 per cent over FY16-21 and is geared to further post 5+ per cent CAGR over FY21-23 from existing capacities. Along with a healthy steel-price outlook, we estimate a normalised EBIDTA/t of ₹12,487 in FY23. Deleveraging will continue, supported by strong operational cash flow. JSPL’s focus on its 8.6-mtpa domestic steel business is paying-off well, through steady improvement in utilisation (overall 93 per cent in Q4FY21) and strengthening cost position (operating leverage, DRI kiln ramp-up). Amid strong steel prices globally and in India, realisation of gains from pre-paid iron ore from Sarda mines has driven profitability, cash flows, as well as deleveraging. Capex towards a pellet plant and slurry pipeline will provide further cost benefits, but is not built into our estimates.

JSPL with 3,400MW TPP has seen a healthy turnaround in FY21 with estimated EBIDTA of about ₹1,600 crore, as coal prices moderated amid healthy PLF. Coal-price outlook remains muted, given healthy domestic coal availability; but lack of PPAs remains the key issue (only 26 per cent capacity is tied-up).

Meanwhile, any progress in the planned sale of the asset would be a key monitorable. JSPL has endeavored to set a floor by issuing non-redeemable convertible preference shares worth ₹7,000 crore in Q4FY21.

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