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/-.
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