Jindal Steel & Power
BSE SENSEX
40,675
S&P CNX
11,994
3 December 2019
Update
| Sector:
Metals
CMP: INR150
TP: INR175(+17%)
Buy
Order on Sarda mines deferred
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
JSP IN
973
152.5 / 2.1
190 / 91
20/-8/-20
2125
39.6
Financials Snapshot (INR b)
2019 2020E 2021E
Y/E Mar
393.7 385.1 389.5
Net Sales
84.1
76.5
86.6
EBITDA
3.2
-6.8
1.1
PAT
3.3
-7.0
1.1
EPS (INR)
-138.7 -313.3 -116.3
Gr. (%)
335.0 327.0 328.2
BV/Sh (INR)
1.0
-2.1
0.3
RoE (%)
5.3
4.4
5.7
RoCE (%)
0.4
0.5
0.4
P/BV(x)
6.5
6.9
5.7
EV/EBITDA(x)
Shareholding pattern (%)
As On
Sep-19 Jun-19 Sep-18
Promoter
60.4
60.5
58.7
DII
11.1
9.2
11.1
FII
15.3
15.1
18.3
Others
13.3
15.1
12.0
FII Includes depository receipts
Stock Performance (1-year)
Jindal Steel
Sensex - Rebased
200
150
100
50
The Supreme Court (SC) has deferred its verdict on JSP’s case related to the offtake
of iron ore from the Sarda mines. As a backdrop, we note that operations at the
Sarda mines have been shut since 2014. JSP though had made payment for ~12mt
of iron ore (mainly fines) to Sarda and the state (royalty/taxes), thereby stating its
claim on the related ore. This claim has been challenged by the Odisha government
in the SC (Odisha High court had ruled in favor of JSP). Odisha has claimed that
transportation of material forms part of mining activity (according to the MMDR
Act) and necessitates an environment clearance for the mine. Hearing on this case
has been ongoing and a verdict was expected in today’s hearing. The decision
though has been deferred with the next hearing now scheduled to the second
week of Jan’20, according to our interactions with JSP.
Positive verdict may lead to INR22-24b savings
JSP cited it sources iron ore fines at INR1,800-2,000/t (ex-mine). Thus, if the
company were allowed to lift the 12mt of fines, it will lead to a benefit of INR22-
24b. Moreover, this would come at a time when the domestic iron ore market may
get disrupted upon expiry of iron ore leases in Mar’20. Our FY21 volume estimates
(~6mt) imply annual iron ore requirement of ~9.6mt. JSP sources ~3mt from its
captive mines and the balance (~7mt) from various merchant mines. Thus,
availability of this 12mt would provide significant cushion against any possible
disruption (accounting for 18-20 months of sourcing from merchant mines).
Maintain Buy on FCF generation as volumes ramp up
In recent times, JSPL’s stock has re-rated (up ~55% over the past two months) on
expectations of (a) benefit of coal block allocation (Gare Palma), (b) possible
positive verdict on the Sarda mines case and (c) a recovery in steel prices. Domestic
and global steel prices have shown signs of recovery over the past two months
which is a positive. We do not build in any benefit from offtake of iron ore from the
Sarda mines as the final verdict is still awaited. Favorable verdict for the same
would drive an upside to our numbers. We note that the stock may remain volatile
over the near term on news flow related to the same. We continue liking JSP as
major capex is now behind and FCF generation should continue along with ramp-
up in volumes. Re-iterate
Buy
with an SOTP-based target price of INR175.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Amit Murarka
– Research Analyst
(Amit.Murarka@motilaloswal.com); 02271992309
Aniket Mittal
– Research Analyst
(aniket.mittal@motilaloswal.com); 912271985585