Despite shining steel, power and debt to remain drag for JSPL

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Published: March 5, 2019 2:15:38 AM

The company's net debt fell to Rs 40,100 crore at the end of December 2018, compared with Rs 41,600 crore a quarter ago, due to cash flow and translation gains on foreign debt.

In addition to Oman, JSPL has mines in Mozambique and Australia having small operations.

While an increase in steel prices following the global trend and likely firm pellet prices in the March 2019 quarter will aid the finances of Jindal Steel and Power (JSPL), the high outstanding debt, poor earnings from overseas business and low plant load factor (PLF) at power plants will remain a drag.

The company’s net debt fell to `40,100 crore at the end of December 2018, compared with `41,600 crore a quarter ago, due to cash flow and translation gains on foreign debt.

Nonetheless, JSPL’s net-debt/Ebitda is 4.8 times its FY20 estimates and 4 times FY21 estimates, according to Kotak Institutional Equities (KIE).
During the December 2018 quarter, while JSPL’s EBITDA rose 21% year-on-year (y-o-y) to around Rs 1,950 crore, its EBITDA for other businesses (mainly overseas operations) except power declined 14% compared with the year-ago period, due to lower EBITDA at Oman steel plant which fell almost 50% y-o-y to $32 million.

The management is reportedly looking to raise $300 million through equity sale in its Oman steel business. In addition to Oman, JSPL has mines in Mozambique and Australia having small operations.

JSPL reported a consolidated net loss of `24 crore during the December 2018 quarter, down from `260 crore a year ago.
The stock of the company on BSE at its closing price of `161.45 apiece on Friday (markets were closed on Monday) was down 35.2% in the last one year and has underperformed the Sensex which has gained 5.9% during the period.

The other burden on the finances is its power business. The company has an installed capacity of 3,400 MW, but only 30% of its is tied to long- or medium-term power purchase agreements (PPAs). Its plants operated at a PLF of 35% during the December 2018 quarter, while the PLF for private operators in the country during the period was 56.3%.

The company has indicated that it participates in short-term PPAs and apart from winning a 200 MW PPA in Telengana to run up to April 2019, it is hopeful of winning new tenders. KIE noted that “lower PLF of Jindal Power is due to inadequate PPAs”.

Nevertheless, the company is likely to gain from increase in prices of pellet in the international market as a Brazilian state has cancelled the licence of Vale to operate the Brucutu mine after the dam break in January. This will have an production impact of 11 MT per annum of pellet, in addition to 70 MT per annum of iron ore in the international market, pulling up prices. JSPL has the pellet production capacity of 9 MT.

In addition, while domestic steel demand slowed in the September quarter as end-consumers destocked, the demand is expected to recover in the current quarter and increased prices by Rs 1,000 per tonne for February bookings. However, analysts are cautious about the impact of slowdown in China on global metal prices.

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