11 June 2013
Update | Sector: Metals
Jindal Steel & Power
BSE Sensex
19,143
S&P CNX
5,789
CMP: INR226
TP: INR271
Upgrade to Neutral
CBI files FIR; Projects at risk
Bloomberg
JSP IN
Equity Shares (m)
934.8
M.Cap. (INR b)/(USD b) 211.3/3.6
52-Week Range (INR)
480/202
1,6,12 Rel. Perf. (%) -22/-44/-62
Operating assets provide valuation support; Upgrading to Neutral
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
EPS Gr(%)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV
EV/EBITDA (x)
Div. Yield (%)
2013 2014E 2015E
198.1
66.7
34.8
-12.1
18.9
12.9
5.5
6.1
1.1
7.0
0.9
214.6
75.0
34.3
36.7
-1.5
233.5
16.9
11.5
5.6
6.2
1.0
6.9
0.9
265.4
94.6
38.4
41.1
12.0
270.8
16.3
11.9
5.0
Adj. EPS (INR) 37.2
BV/Sh. (INR) 200.5
According to media reports, the Central Bureau of Investigation (CBI) has filed a first
information report (FIR) against Jindal Steel & Power (JSPL) and its promoter in
connection with coal blocks allotted during 2004-09. None of these blocks are either
operational or expected to become operational over the next two to three years.
Further, JSPL has not incurred material capital expenditure either on the coal blocks
itself or associated projects. The operating assets too remain unaffected. However,
growth and CWIP valuations have come under a risk and call for review and de-rating of
the stock.
Although fundamentals of JSPL's businesses remain challenging due to (1) slowing
steel demand and (2) power sector problems, the sharp correction of 50% in stock
price since we downgraded the stock (to sell at INR462 in our sector thematic report
CWIP valuation demystified dated January 7, 2013) calls for a review. The stock has
fallen 20% below the revised SOTP (discussed later) of INR271/share, largely based on
operating assets. The downside risk to earnings still remains, but the valuation close to
P/BV of 1x provides comfort. We upgrade the stock to Neutral.
CBI's FIR: no direct impact on operating assets; Projects may be at risk
5.5
0.8
5.8
0.9
According to media reports, CBI has filed an FIR against Jindal Steel & Power
(JSPL), group companies, Naveen Jindal (the promoter) and Mr D N Rao (former
minister of state for coal) in connection with allotment of coal blocks during
2004-09. They have been charged with cheating, forgery, misrepresentation
of net worth and concealing previous allotments of coal blocks.
During 2004-09, JSPL was allotted Gare Palma IV/6 (2006) in Chhattisgarh,
Ramchandi (2009), Urtan North (2009) in Orissa and Jitpur (2007) and
Amarkonda Murgadangal (2008) in Jharkhand, with total reserves and
resources of 1,942m tons as per the following details. None of these blocks
are either operational or are expected to become operational over the next
two to three years. Further, JSPL has not incurred material capital expenditure
either on the coal blocks itself or associated projects.
Thus, the de-allocation (if at all) is not likely to affect the operating assets.
Prior to 2004, JSPL was allotted Gare Palma IV/1 (1996), Gare Palma IV/2 (1998),
Gare Palma IV/3 (1998) and Utkal B-I (2003). The three Gare Palma coal blocks
(allotted during 1996-98) are already operational and support sponge iron
and power generation in Chhattisgarh for steel and power businesses.
Shareholding pattern (%)
As on
Mar-13 Dec-12 Mar-12
Promoter
59.1
59.0
58.9
Dom. Inst
6.8
6.0
6.9
Foreign
22.6
23.8
23.1
Others
11.6
11.2
11.1
Stock performance (1 year)
Sanjay Jain
(Sanjay.Jain@MotilalOswal.com); +91 22 3982 5412
Pavas Pethia
(Pavas.Pethia@MotilalOswal.com); +91 22 3982 5413
1

Jindal Steel & Power
Coal Resources
Name of Block
Gare Palma-IV/1
Gare Palma-IV/6
Gare Palma-IV/2 & 3
Utkal B1
Ramchandani
Amarkonda Murgandangal
Jitpur
Urtan North
Total Domestic reserves
State/
Country
Chhattisgarh
Chhattisgarh
Chhattisgarh
Orissa
Orissa
Jharkhand
Jharkhand
Madhya Pradesh
Reserves
(m tons)
124
156
246
228
1,500
205
81
55
2,595
Allotment
Date
20-Jun-96
13-Jan-06
1-Jul-98
29-Sep-03
27-Feb-09
16-Nov-07
20-Feb-07
Purpose
Steel &
Steel &
Power -
Steel &
Coal to
Power
Power
Steel &
Power
Power
JPL
Power
liquid
Production
(mtpa)
6
-
6
Expect to mine 6
-
-
-
-
Source: Company, MOSL
Power
Fundamentals still challenging; Upgrading to Neutral based on valuations
We have valued the stock at INR274 based on the SOTP method. The target price
includes INR78b (at 40% discount) for the valuation of CWIP. Since this event is
likely to affect future projects, the INR78/share valuation of CWIP in our SOTP is at
risk. In such a situation, JSPL too is likely to cut capex in greenfield projects.
Assuming INR70b capex of the planned INR120b capex in the steel business is
reduced during FY14-15, the net debt will be correspondingly lower. Adding back
this, the target price will work out at INR271. We do not expect capex in the power
business (Tamnar 2) to be affected as the project is in an advanced stage.
Although fundamentals of JSPL's businesses remain challenging due to (1) slowing
steel demand and (2) power sector problems -- power demand on the back of
financial stress in power distribution supply chain, the sharp correction of 50% in
stock price since we downgraded the stock (to sell at INR462 in our sector thematic
report CWIP valuation demystified dated January 7, 2013) calls for a review. The
stock has fallen 20% below the revised SOTP of INR271/share, largely based on
operating assets. The downside risk to earnings still remains, but the valuation
close to P/BV of 1x provides comfort. We upgrade the stock to
Neutral.
Sum of the part valuations
Equity Valuation
Iron & Steel
add: CWIP
Less: net debt
add: Tamnar II
SOTP
Less: Ignore CWIP
add: cut in CapEx
SOTP (excl. CWIP)
Business
Segment
Steel, Power
Steel, Power
Steel, Power
DCF (to equity)
DCF (to equity)
Power
Method
Valuation
multiple
0.6
Value
Rationale
(INR m) (INR/sh)
270,025
72,501
264,239
128,965
48,844
256,096
72,501
70,000
253,595
289
283
In-line with sector practice
net consolidated debt (Except Jindal power)
78 40% disc. based on our report dt 7th Jan, 2013
138 1,000MW Capacity for Tamnar 1
52 2,400MW capacity for Tamnar 2
274
78
75
271
Source: MOSL
FY15E EV/EBITDA (x) 5.0
at discount
add: Jindal Power Power
11 June 2013
2

Jindal Steel & Power
Jindal Steel & Power: Financials and Valuation (consolidated)
Income Statement (Consolidated)
Y/E March
Net sales
Change (%)
Total Expenses
EBITDA
% of Net Sales
Depn. & Amortization
EBIT
Net Interest
Other income
PBT before EO
EO income
PBT after EO
Tax
Rate (%)
Reported PAT
Minority interests
Share of Associates
Adjusted PAT
Change (%)
2011
131,122
18.2
67,960
63,162
48.2
11,510
51,652
2,596
815
49,871
49,871
11,830
23.7
38,040
659
158
37,539
4.7
2012
182,086
38.9
114,154
67,932
37.3
13,865
54,067
3,600
1,419
51,886
51,886
11,863
22.9
40,023
574
200
39,649
5.6
2013
198,068
8.8
131,381
66,687
33.7
15,392
51,294
8,583
1,364
44,076
-5,741
38,335
9,218
24.0
29,116
417
402
34,842
-12.1
2014E
214,563
8.3
139,558
75,005
35.0
19,157
55,849
11,830
1,464
45,482
0
45,482
10,824
23.8
34,658
532
200
34,326
-1.5
(INR Million)
2015E
265,444
23.7
170,889
94,555
35.6
25,739
68,816
18,129
24
50,711
0
50,711
11,661
23.0
39,051
804
200
38,447
12.0
Balance Sheet (Consolidated)
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liability
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Good will
Investments
Curr. Assets
Inventory
Account Receivables
Cash and Bank Balance
Loans & advances and others
Curr. Liability & Prov.
Account Payables
Provisions & Others
Net Current Assets
Appl. of Funds
E: MOSL Estimates
11 June 2013
2011
934
140,169
141,103
2,335
139,728
10,055
293,221
192,756
44,321
148,435
93,809
1,018
2,979
114,648
27,734
11,537
4,640
70,737
67,668
22,736
44,933
46,980
293,221
2012
935
180,176
181,111
3,071
170,908
11,920
367,010
223,301
58,360
164,940
136,520
918
3,776
143,922
35,795
13,068
1,492
93,567
83,066
29,110
53,956
60,856
367,010
2013
935
186,476
187,410
3,461
254,455
13,197
458,524
254,002
73,983
180,019
210,468
1,018
5,001
152,764
35,880
18,227
1,262
97,396
90,746
36,284
54,462
62,018
458,524
2014E
935
217,303
218,238
4,050
314,955
14,512
551,755
399,168
93,139
306,028
167,505
1,018
5,001
165,260
38,057
19,453
10,354
97,396
93,056
38,594
54,462
72,203
551,755
(INR Million)
2015E
935
252,252
253,187
4,910
338,955
15,618
612,670
467,660
118,879
348,781
188,828
1,018
5,001
166,162
40,424
22,095
6,247
97,396
97,119
42,657
54,462
69,043
612,670
3

Jindal Steel & Power
Jindal Steel & Power: Financials and Valuation (consolidated)
Ratios (Consolidated)
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
EBITDA Margins (%)
Net Profit Margins (%)
RoE
RoCE (pre-tax)
RoIC (pre-tax)
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Debtor (Days)
Inventory (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Debt/Equity
48.2
28.6
30.5
21.3
33.7
0.7
0.4
32.1
21.2
1.7
19.9
1.0
37.3
21.8
24.6
16.9
26.1
0.8
0.5
26.2
19.7
1.7
15.0
0.9
2011
40.1
53.0
151.0
1.5
3.8
2012
42.4
57.6
193.7
1.6
3.9
2013
37.2
47.6
200.5
2.0
5.5
6.1
4.7
1.1
2.3
7.0
0.9
33.7
17.6
18.9
12.9
22.1
0.8
0.4
33.6
18.1
1.7
6.0
1.4
2014E
36.7
57.6
233.5
2.0
5.6
6.2
3.9
1.0
2.4
6.9
0.9
35.0
16.0
16.9
11.4
18.4
0.5
0.4
33.1
17.7
1.8
4.7
1.4
2015E
41.1
69.3
270.8
2.0
5.0
5.5
3.3
0.8
2.0
5.8
0.9
35.6
14.5
16.3
11.9
17.7
0.6
0.4
30.4
15.2
1.7
3.8
1.3
Cash Flow Statement (Consolidated)
Y/E March
Pre-tax profit
Depreciation
(Inc)/Dec in Wkg. Cap.
Tax paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA + CWIP
(Pur)/Sale of Investments
CF from Inv. Activity
Equity raised/(repaid)
Debt raised/(repaid)
Dividend (incl. tax)
CF from Fin. Activity
(Inc)/Dec in Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
11 June 2013
2011
49,871
11,510
-25,857
-10,230
1,235
26,528
-75,471
206
-75,265
3
53,685
-1,439
52,249
3,512
1,128
4,640
2012
51,886
13,865
-17,024
-9,999
840
39,568
-73,254
-797
-74,052
1
31,180
-1,536
31,307
-3,177
4,640
1,492
2013
38,335
15,392
-1,392
-7,375
-20,304
24,656
-104,650
-1,225
-105,875
0
83,547
-1,920
81,627
-230
1,492
1,262
2014E
45,482
19,157
-1,093
-9,515
-1,316
52,715
-102,202
0
-102,202
0
60,500
-1,920
58,580
9,093
1,262
10,354
(INR Million)
2015E
50,711
25,739
-947
-10,559
-1,316
63,628
-89,815
0
-89,815
0
24,000
-1,920
22,080
-4,108
10,354
6,247
4

Jindal Steel & Power
NOTES
11 June 2013
5

Disclosures
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement
to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its
affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or
employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliates
or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness
for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest
Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
Jindal Steel & Power
No
No
No
No
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For U.K.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States.
In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state
laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein
are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended
(the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into
a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within
the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer,
MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst
account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore
to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Nihar Oza
Kadambari Balachandran
Email: niharoza.sg@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact: (+65) 68189232
Contact: (+65) 68189233 / 65249115
Office address: 21 (Suite 31), 16 Collyer Quay, Singapore 049318
Motilal Oswal Securities Ltd
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com