Jindal Steel & Power Limited

  • Jindal Steel & Power Limited
30 Aug

Strong tailwinds for Steel production in India – Jindal Steel and Power

Update on Indian Equity Market:

On Monday, markets ended at an all-time closing high with Nifty closing 226 points higher to close at 16,931. BHARTIARTL (5.0%), DIVISLAB (4.2%), and AXISBANK (4.0%) were the top gainers on the index while TECHM (-1.4%), NESTLEIND (-1.1%), and EICHERMOT(-1.1%) were the top losers for the day. Among the sectoral indices,  METAL  (2.5%), PSU BANK (2.0%), and BANK (2.0%) were the top gainers, while IT (-0.6%) was the only laggard.

Excerpts of the Interview with Mr. VR Sharma, Managing Director at Jindal Steel and Power Ltd on Economic Times, dated 24th August 2021:

  • The steep fall in Iron Ore prices has lifted the market spirits across the world. However, that hasn’t translated to a fall in steel prices due to stiffness in coking coal prices and high input costs for other ferrous metals. 
  • The lower iron prices aided by a $1000/MT steel price in international markets are translating into improved gross margins for producers, and the market will likely stabilise at these levels.
  • India has to reach a level of about 300 million tonnes by 2030. In nine years, it may be producing about 300 million tonnes of steel and consuming the same quantity. 
  • Overnight it is very difficult to build up capacities. Building up capacities takes about three to four years, all-steel producers are bullish about India’s prospects, and a Rs. 2 tn investment is expected to be made over the next 5 years.
  • The sector is showing healthy growth and the demand has already begun to pick up, the company expects the entire steel sector to shine in the upcoming years.
  • Steel demand will continue because infrastructure projects are in offing and there are a lot many projects on the table now. The construction sector is booming and the shipbuilding sector, defence sector, and the oxygen cryogenic plants are increasing in terms of number.
  • Headwinds such as adverse Chinese Steel Policy, logistical bottlenecks, Covid induced supply disruptions have led to coking coal prices being inflated. This is putting pressure on steel prices which are not expected to recover in the short term.
  • The industry expects to shift from coking coal to indigenous coal, which is both cost friendly and environment friendly and offers protection from such price shocks.
  • The Chinese steel industry has seen a  dip in production and consequently exports, being the second-largest steel producer, India is well poised to take the benefits of  Chinese fallback,

Asset Multiplier Comments:

  • The cyclical recovery in the steel sector may have finally arrived. With the tailwinds for this industry, it is likely to grow fast over new capex and recovery cycle for the decade. 
  • Jindal Steel and Power is one of the largest steel producers in India. It is well poised to reap the benefits of scale and the tailwinds. It is likely to deliver great value to its shareholders.

Consensus Estimates (Source: market screener website): 

  • The closing price of Jindal Steel and Power was ₹ 379/- as of 30-August-2021.  It traded at 7x/5x the EPS estimate of ₹56/₹ 77  for FY22E/23E. 
  • The consensus price target is ₹ 538/- implies a PE multiple of 7x on FY23E EPS of ₹ 77/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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07 Jul

Steel prices to be under pressure in the short term – Jindal Steel and Power

Update on Indian Equity Market:

On Wednesday, markets ended higher with Nifty closing 61 points higher at 15,879. TATASTEEL (+5.0%), JSWSTEEL (+2.7%), HINDALCO (+2.1%) were the top gainers on the index while TITAN (-2.0%), ONGC (-1.2%), and MARUTI (-0.9%) were the top losers for the day. Among the sectoral indices,  METAL (+2.2%),  REALTY (+2.0%), and FINANCIAL SERVICES (+0.6%) were the top gainers, MEDIA (-0.2%), and AUTO (-0.1%) were the only losers.

 

Excerpts of an interview with Mr. V R Sharma, MD, and CEO of Jindal Steel and Power on CNBCTV18 dated 5th July 2021:

 

  • Short-term pressure on Steel Prices is seen in International and European Spot Markets, with the prices hovering around USD 1,100 and 1,200 per tonne. This due to lower exports to Europe due to tariff and quota fears.
  • There is a value difference of around USD 200-250 per tonne between export and Indian domestic markets. There is a scope of reducing the delta to around USD 150 per tonne.
  • There is pressure on the demand for hot-rolled coils which forms part of the company’s exports which are 35-40% of the company’s total sales. This has resulted in the prices reducing to USD 1,020 per tonne.
  • The prices of other products are stable. 
  • There is a softening of about Rs 1,000-1,200 per tonne across all the products, which is normal because international prices play a vital role in today’s markets.
  • In terms of domestic demand, steel plates have shown a good demand and hot-rolled coils have shown moderate demand. The demand is very sluggish in the structural steel, construction steel, and rebar segments.
  • The company has produced 2.03 million metric tonnes of steel in 1QFY22 and is on track to manufacture 8.3 million metric tonnes for FY22. The exports for 1QFY22 were 0.6 million metric tonnes with full-year exports expected to be around 2.8 million metric tonnes.
  • The Company has Rs 165bn of debt as of 1QFY22 which the company is planning to reduce below Rs 100bn over FY22.

 

Asset Multiplier Comments:

  • Due to the Covid-19 pandemic, the demand for steel across domestic and international markets has been impacted. With the economic recovery,  there’s optimism for the sector.
  • The Company is taking efforts to deleverage its balance sheet in order to improve its performance across key operating metrics which will help the company grow further.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Jindal Steel and Power was ₹ 400/- as of 7-July-2021.  It traded at 5x/ 8x the EPS estimate of ₹ 75/ ₹ 51 for FY22E/23E respectively.
  • The consensus price target is ₹ 513/- which trades at 10x the EPS estimate for FY23E of ₹ 51/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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28 Jul

Export strategy worked out – Jindal Steel & Power Limited (JSPL)

Update on the Indian Equity Market:

On Monday Nifty closed 0.6% lower at 11,132. Among the sectoral indices PVT Bank (-3.6%), Bank (-3.6%) and PSU Bank (-3.1%) closed lower. IT (+2.0%) and Metal (+0.3%) closed on a positive side. Asian Paints (3.5%), HCL Tech (+3.1%) and Infosys (+2.6%) closed on a positive note. ICICI Bank (-6.0%), ZEEL (-4.0%), and HDFC Bank (-3.5%) were among the top losers.

Excerpts from an interview of Mr. V.R Sharma, MD, JSPL with ET Now on 23rd July 2020:

  • The quarter one of the current financial year was very challenging, as the entire nation was under lockdown.
  • The company charted out policies and switched from domestic market to export market.
  • It took sleepless nights to adapt to new polices and because of that, the company could reach to 1.67 metric tons production.
  • While the industry was down by 50% in terms of volumes, JSPL could increase production by 8% which led to 12% sales growth quarter on quarter. The strategy worked out very well.
  • In the quarter, EBITDA increased from Rs 10,600 a ton to Rs 11,700 a ton, an increase of about Rs 1,100.
  • Economies of scale, reduction in cooking coal and iron ore prices led to higher EBITDA. The company also managed to keep a control on overall costs.
  • JSPL could do a sale of exports in April for 2,48,000 tons; in May, it was 4,01,000 tons and in June it was 2,50,000 tons. In July the company is planning to bring it down to 2,00,000 tons, and the target for August is also 2,00,000 tons. So, on a monthly basis, dependence on exports would be only 30% and 70%. The company will focus back to sell in the domestic market because the market is picking up and a lot of new projects are coming and that is a good sign.
  • The power business was also challenging because power consumptions in the country was very low, industries were closed, offices were closed, no malls, no shopping centers were working. However, the company managed to maintain and EBITDA of Rs 368 crore.
  • The coal prices have come down. Coal India is very pragmatic and it is working on a right price strategy from 84 paisa per megawatt, now they have come down to 52-53 paisa per MW. The prices will come down further and it should be somewhere about 40 to 42 paisa. Once these numbers are achieved, hopefully JSPL will be in a position to maintain the profitability as well as the overall EBITDA level.
  • The company is expecting an EBITDA of more than Rs 500 crore in Q3, as the sale of power has increased and there is a flexibility now in iExchange.
  • The company has reduced debt by Rs 1,562 crore. Initially, the plan was a Rs 5,000 crore reduction but now the company is sure debt can be reduced by Rs 6,000.
  • The company aims to reach aim is to reach at Rs 15,000 crore debt by 2023 from current level of 29,000 crore with an EBITDA of about Rs 12,000 crore.

Consensus Estimate: (Source: market screener)

  • The closing price of JSPL was ₹ 176/- as of 27-July-2020.  It traded at 82x/16x the consensus earnings per share estimate of ₹ 2.15/11.0 for FY21E/ FY22E respectively.
  • The consensus average target price for JSPL is ₹231/- which implies a PE multiple of 21x on FY22E EPS of ₹ 11/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

 

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08 Jul

Steel companies in India running at 90% capacity – Jindal Group

Update on the Indian Equity Market:

On Tuesday Nifty closed 0.3% higher at 10,799. Among the sectoral indices, Pvt Bank (+2.7%), IT (+2.1%), and Bank (+1.9%) closed higher. Metal (-1.7%), Realty (-0.7%), and FMCG (-0.4%) closed lower. Bajaj Finance (+7.8%), IndusInd Bank (+5.9%) and Bajaj FinServ (+4.5%) closed on a positive note. Adani Ports (-3.5%), PowerGrid (-3.0%) and Grasim (-2.9%) were among the top losers.

Excerpts from an interview of Mr Sajjan Jindal, Chairman, Jindal Group with ET Now dated 6th July 2020: 

  • Speaking about the current economic scenario he said the June GST collection of Rs 90,000 crore gives a good indication. The auto industry is sluggish and is operating at about 30-35% level from a production perspective.
  • October this year could be better than last October.
  • For steel products, domestic demand is about 50% of the capacities which is about 50-60 million tonnes for the year. By the end of the year, it is expected to go to the normal level, which is 110 million tonnes.
  • The steel industry in India is balancing the current situation by exporting steel to different parts of the world. Therefore, steel companies in India are running at close to 90% capacity.
  • There should not be any control over imports and exports. But when it comes to China, the country has not behaved properly with India.
  • The steel companies buy refractories from China for steel making and it is one of the important ingredients for manufacturing steel. The company buys 90% material from China, but there are plans to bring down the dependence on China and focus on domestic manufacturing or exports from other countries. 
  • In the beginning, there will be a pain as Indian supplies are going to be expensive. The company will work with Indian producers and the emerging markets to bring down the cost and improve the quality.
  • The group has given clear instructions that they will not import any material directly from China which is close to $400 million.
  • The industry has to come together to support the army and government and automatically this will go a long way in developing the Indian industry.
  • On Coal Import, he said India does not have good quality metallurgical coal needed for manufacturing steel. So, the company have to import that. The group cannot be 100% self-reliant on everything. But importing manufactured products is not a great idea. So the industry should be developed.

Consensus Estimate: (Source: market screener websites)

  • The closing price of JINDALSTEL was ₹ 156/- as of 07-July-2020.  It traded at NM/20 x the consensus earnings per share estimate of ₹ -6.3/7.8 for FY21E/ FY22E respectively.
  • The consensus average target price for JINDALSTEL is ₹ 176/- which implies a PE multiple of 23x on FY22E EPS of ₹ 7.8/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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08 May

Company sticks to its debt reduction initiative- Mr Naveen Jindal

Excerpts from an interview of Mr.Naveen Jindal, Chairman, Jindal Steel & Power Limited (JSPL) with ET Now on 5th May 2020:

Update on the Indian Equity Market:

On Thursday Nifty closed -0.8% lower at 9,199. Among the sectoral indices FIN Services (-1.6%), FMCG (-1.4%) and Bank (-1.0%) closed lower. NIFTY PSU Bank (+0.1%), NIFTY Media (+0.1%) closed on a positive side. Bharti Infratel (7.1%), Indusind Bank (6.6%) and Adani ports (4.4%) closed on a positive note. NTPC (-4.3%), BPCL (-4.2%) and ONGC (-4.2%) were among the top losers.

  • Jindal Steel & Power (JSPL) is looking for a strategic partner to offload part of its stake in its subsidiary in Oman, marking a significant shift from its earlier plan for an IPO as the Covid-19 pandemic impacts industries.
  • The company plans to stick to its debt reduction initiative by reducing overall debt to Rs. 25,000 crore in two years.
  • The pandemic has impacted functioning and production of steel industry, JSPL’s plants at Raigarh and Angul are fully operational since the start of the lockdown.
  • As domestic demand is impacted, the company is looking for exports. The company is exporting 80% of production these days.
  • The company is exporting steel to China, Malaysia, Europe, the USA, export order of rail blooms from France. In the domestic market the company had received supply orders from Rail Vikas Nigam for Kolkata Metro.
  • Domestic steel demand has seen a major fall post-March, due to complete lockdown. Demand will pick up up before the monsoon season, post lockdown, as infrastructure projects and construction activities will resume.
  • A stimulus is necessary and the government should frontload its $250 billion spending plan under the National Infrastructure Pipeline. The government should also announce a sizeable package to compensate loss of income suffered by Indian industry.
  • JSPL is looking to raise money but not considering equity.
  • On overseas front plants and mines are doing well for the company.
  • The company had applied for a moratorium, like many other corporate.

 

Consensus Estimate: (Source: market screener and Investing.com websites)

  • The closing price of JSPL was ₹ 90/- as of 7-May-2020.  It traded at -20.5x/-20.3x/11.7x the consensus earnings per share estimate of ₹ -4.39/-4.43/7.65 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price for JSPL is ₹179/- which implies a PE multiple of 23.3x on FY22E EPS of ₹7.65/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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