Jindal Steel & Power’s (JSPL) consolidated Q4FY17 EBITDA at Rs15.5 billion (up 73% y-o-y) surpassed consensus primarily on better performance of overseas subsidiaries. We believe, EBITDA CAGR of 32% over FY17-19E will be led by volume ramp up at domestic and international operations despite power PLF remaining at 35% on an average. In our view, JSPL is better placed compared to peers in maintaining its EBITDA margin due to high margin niche products such as plates and rails in its portfolio. However, taking cognizance of the delay in commissioning of the blast furnace at Angul, we revise FY18E EBITDA down 9%, while maintaining FY19E EBITDA. Maintain ‘Buy’ with revised TP of Rs155, earlier Rs160, implying an exit multiple of 6x.
JSPL’s consolidated EBITDA jumped 73% y-o-y to Rs15.5 billion primarily due to improved performance of subsidiaries: selective power sales and operating cost efficiencies helped Jindal Power’s (JPL) EBITDA catapult 181% y-o-y to Rs3.8 billion despite flat sales; Jindal Shadeed’s EBITDA grew 88% y-o-y to $ 32 million EBITDA/t at $82 compared to $36 in Q4FY16; and mining subsidiaries posted positive EBITDA on production ramp up amidst better realisation y-o-y. We expect the performance to sustain post rebar mill ramp up at Oman and continued volume growth at mining subsidiaries.
We believe, volume-led growth on all fronts will generate free cash flow equivalent to 20% of current market cap over the next 2 years. Consolidated EBITDA jumped 217% y-o-y to Rs2.6 billion owing to Jindal Shadeed’s improved performance. We expect superior performance in FY18 due to better product mix and EBITDA/t to range between $ 80/t and $ 90/t over the next two years. Coal production at Australia and Mozambique is ramping up with EBITDA at AUD30.1m and $ 4.9 million, respectively, for Q4FY17. Going ahead, we expect capacity ramp at both operations to drive growth.