The company expects an Ebitda of ~R11,000 crore in FY15, driven by a) commissioning of 4.5-mtpa pellet plant in Barbil, Orissa; b) contribution of 2-mtpa steel plant at Angul and 2-mtpa steel melting shop in Oman; and c) commissioning of two of 4*600MW units at Tamnar II.
JSPL has guided that capex intensity for the ongoing expansion would peak in FY14. With balance sheet health now being the primary focus, the company does not plan to invest in projects unless backed by sufficient raw material security. Strong Ebitda generation, coupled with lower capex, should result in substantial free cash flow in FY15E.
JSPL has announced a share buyback of R1,000 crore at a maximum price of R261, which, at CMP, equates to ~4% of fully diluted equity shares.
We remain positive on JSPLs long-term business model. However, in the near term, lower JPL realisations, negative news flow from the CBI case and uncertainty over Shah panel recommendations (especially for Sarda iron ore mines) will weigh on sentiment. Maintain outperform with a revised SoTP target price of R320, valuing the steel business at 5.5x FY15 EV Ebitda.