Macquarie maintains 'Outperform' on Jindal Steel and Power

Sep 03 2013, 09:04 IST
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SummaryJindal Steel and Power (JSPL) has announced a buyback of R1,000 crore at a maximum price of R261/share, which at this price equates to 4% of the fully diluted equity and around 7% of the free float. We maintain ‘outperform’.

Jindal Steel and Power has announced a buyback of R1,000 crore at a maximum price of R261/share, which at this price equates to 4% of the fully diluted equity and around 7% of the free float. We maintain 'outperform'.

At the maximum rate of R261/sh, the buy-back is marginally EPS-accretive up to 2%. The company, though, has large debt of R30,000 crore, but largely it is project-specific. JSPL is completing its mega capex this year, to increase its power capacity by 3.4x to 3400MW and steel capacity by 50% to 4.5mtpa. We expect Ebitda to increase by 70% to R10,000 crore in FY15 with no further capex planned.

More catalysts shortly to increase confidence in profitability of new projects: For its upcoming 2400Mw, we expect announcement of a PPA for 400Mw at R4.90/unit for 15 years and FSA with Coal India for coal supply for 1200MW to be declared in the next few days. On the steel expansion by 1.5mtpa at Angul, we expect final approval of Utkal B1 coal mine shortly.

Maintain Outperform. JSP has already corrected sharply on various policy concerns and is trading at attractive valuations of 5x PER on FY15E and at just 0.8x P/B with 17% ROE. We advise investors to use the current weakness to buy. Our 12-month price target is R350.

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