Jindal Steel & Power’s (JSPL) consolidated Q1FY17 EBITDA of Rs 9.8 billion (flat y-o-y) surpassed consensus as well as our estimates due to lower operating cost at steel division, higher pellet sales and good performance of Jindal Shadeed. However, we are concerned that lower operating cost may be unsustainable as coking coal prices have catapulted, PLF at JSPL continues to be low and interest coverage remains low. But we do perceive additional value from international operations due to ramp up of rebar mill at Jindal Shadeed and commencement of mining in Australia. We retain FY17/FY18 estimates and reiterate hold with TP of Rs 68.
Consolidated EBITDA came 10% and 18% ahead of consensus and our estimates, respectively. Standalone EBITDA dip was restricted to just 6% y-o-y due to higher pellet sales (up 7x y-o-y to 700,000 tonnes) despite 5% decline in domestic steel sales volume and 26% fall in blended realisation. Raw material cost also remained benign owing to lower iron ore prices and stable coking coal prices. JPL also delivered better performance q-o-q owing to favourable merchant:PPA mix and lower operating fuel cost. Jindal Shadeed’s EBITDA jumped 1.4x y-o-y to $ 53.5 million due to higher global prices and refined product mix.
We believe benign operating cost may be unsustainable as coking coal prices have catapulted 77% in Q2FY17 to $160/t.