PL Stock Report: Jindal Steel & Power (JSP IN) - Q2FY24 Result Update – Delays in execution to hamper volume growth - BUY

Jindal Steel & Power (JSP IN) - Tushar Chaudhari - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs634 | TP: Rs751

Q2FY24 Result Update – Delays in execution to hamper volume growth

Quick Pointers:

§ Commissioning of 5.5mtpa Hot Strip Mill (HSM) is on track to be completed in 3QFY24 but expect delay in commissioning of 3mtpa BOF-III. BOF-II timeline further pushed by two quarters to 4QFY25.

§ Production from Utkal C coal mine to start by Dec-23. JSPL has tweaked its capex plan over last few months which has led to an increase in capex requirement to Rs310bn from earlier Rs240bn.

We cut FY24/25E EBITDA estimates by 9%/7% on higher coking coal price assumption and delays in capacity addition respectively. Jindal steel & Power (JSP) reported strong operating performance in 2Q, driven by 9% QoQ volume growth in standalone business. EBITDA was in line with our estimates as lower than expected realization was compensated by better volumes. Average coking coal cost for 2Q was lower by ~USD70/t QoQ which is expected to increase by ~USD55/t in 3Q.

JSP is well poised to take dual benefit of volume growth and improvement in product mix over FY23-26E post commissioning of HSM; however, there has been delays of few quarters in blast furnace commissioning which would impact FY25 volumes. We have cut our FY25 volume assumption accordingly and introduce FY26 estimates. Incremental volumes from pellet plant and cost savings from captive coal mines would contribute to FY25 EBITDA margins. We expect Revenue/EBITDA/PAT CAGR of 7%/13%/23% over FY23-26E. At CMP, stock is trading at 6x/5x EV of FY25E/FY26E EBITDA. Retain ‘BUY’ rating with revised TP of Rs751 (earlier Rs812) valuing at 6x EV of Sept 2025E EBITDA, as we roll forward.

§ Revenue declined 8% YoY: Standalone revenue stood at Rs 120.8bn (-8% YoY/-2% QoQ) led by decline in realizations (PLe 124.9bn) Realizations for the quarter declined 8% YoY to Rs60.1k (PLe Rs63.4k). Sales volume increased 9% QoQ to 2.01mt (PLe 1.98mt) led by strong domestic demand. Consolidated revenue stood at Rs122.5bn (-9% YoY/-3% QoQ)

§ In-line EBITDA: Standalone EBITDA increased 26% YoY (-12% QoQ) to Rs 23.1bn (PLe 23.2bn) on account of decline in RM and other expenses. EBITDA/t stood at Rs11,632 (+27% YoY; PLe 11,838/t. Consolidated EBITDA stood at Rs 22.8bn (+18% YoY/-13% QoQ; PLe 22.9bn)

§ Concall highlights: (1) Gare Palma IV/6 coal mine produced 0.15mt in the first month of production which will be ramped up in coming months (2) Production at Utkal C mine will begin in Dec-23 (3) Steel realizations have improved up to 2-3% from Q2 exit (4) Overseas subsidiaries reported EBITDA loss of Rs310mn (5) Of the total capex, JSP has spent Rs105bn till date (6) HSM is expected to be commissioned in Q3FY24 (7) JSP has headroom for 1.5x net debt/EBITDA (8) Commissioning of slurry pipeline to lead to cost saving of Rs700/t for iron ore transportation.

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