Group PAT (profit after tax) declined 1% QoQ (quarter-on-quarter) to Rs 9.6 bn, below our Rs 11.5 bn estimates. Power PLF (plant load factor) was strong, but tariff disappointed in the seasonally strongest quarter. Standalone (steel) PAT was below expectations, mainly due to lower volumes. We have trimmed our FY11-12E EPS (earnings per share) by 2-4%. In Jindal Power Ltd (JPL) (55% of PAT), PLF has peaked & merchant tariffs are softening. Captive power & steel should drive growth in FY11, but steel prices are lower and stabilisation of captive power unit is taking longer. Valuations appear full at 9.2x FY11E Ebitda (earnings before interest, taxes, depreciation and amortisation). Our SOTP (sum-of-the-parts) NPV (net present value) is Rs 600 (Rs 609).
Power tariff growth muted in the seasonally strongest quarter: JPL PAT was Rs 5.6 bn, up 7% QoQ, 9% below our estimates. Average PLF was impressive at 101%, but average tariff was Rs 4.6/kwh, up only 2.7% QoQ, 8% below our estimates. We note merchant tariffs are seasonally strongest during Q1 due to the strong demand during summers. We forecast JPL Ebitda to decline 5% in FY11.
Steel profits disappoint on lower volumes: Q1 standalone PAT declined 13% QoQ to Rs 4.4 bn. Output was flat QoQ, but sales volumes declined 26% QoQ to 0.40 m due to destocking, weaker demand during monsoons and logistic issues.
The 2400-mw project is on hold as environmental clearance is pending. JSPL plans to use a smaller area for the project and expects the issue to be resolved soon. It has maintained its timeline for commissioning of the project by FY13. Stabilisation of Unit I, 135-mw captive power at Raigarh is taking longer. Unit II (135-mw) captive power at Raigarh is expected to be commissioned in October 2010.Unit I (135-mw) of the 810-mw Orissa captive power is expected to be commissioned in November 2010.
Results
Power: Unit generation was flat QoQ at 2210 kwh, up 6% QoQ. Average tariff growth was a muted 3% QoQ (Rs 4.6/Kwh) during the quarter. This is disappointing as Q1 is generally the strongest quarter seasonally due to higher demand during summers. We estimate the average cost of power was marginally up at Rs 0.55/Kwh.
Steel: Ebitda was Rs 7.9 bn, down 4% QoQ and below expectation mainly due to lower volumes. Sales volumes were 0.40 m tonnes, down 26% QoQ. Inventories increased by 0.1 m tonnes during the quarter. JSPL expects inventories to be normalised over the next two quarters. We estimate average realisations increased 25% QoQ, which looks surprisingly high. However, this was offset by higher costs.
Outlook and guidance: JSPL has maintained its guidance of steel volumes of 2.5 m tonnes in FY11. We forecast lower volumes of 2.32 m tonnes in FY11. JSPL has maintained its pellet production guidance of 2.5 m tonnes in FY11. It expects 0.5 m tonnes of pellets to be sold externally.
Expansions and capex: The phase-II expansion project (4 x 600-mw) of JPL has been put on hold as the environmental clearance for the project is still pending. JSPL plans to utilise a smaller land area to set up the project. It expects the issue to be resolved soon. The management does not expect any delays in the project and expects to commission the project by FY13. We do not rule out possibilities of some delay in the project. JSPL has guided to capex of Rs 50-60 bn in FY11, Rs 65-70 bn in FY12 and Rs 80 bn in FY11.