Jindal Steel & Power’s (JSPL) Q4FY19 EBITDA missed consensus primarily due to subdued international mining operations; steel division surpassed estimates.
Key highlights: 1) standalone EBITDA fell mere 5% YoY to INR14.4bn owing to operating leverage benefits; 2) debt fell by `41bn in FY19; and 3) `30bn provisions/one-off items led to PAT loss. Going ahead, despite a challenging steel price environment, we estimate 4% EBITDA CAGR through to FY21 due to: 1) ongoing cost reduction at Angul; and 2) possible volume growth of 22% YoY in FY20E.
Taking cognizance of Q4FY19 numbers, we trim FY20/FY21E EBITDA 5%/2%. Maintain ‘buy’ with revised TP of `210, implying an exit multiple of 6.0x (earlier 6.2x) FY21E EBITDA.
Despite an EBITDA miss in Q4FY19, we are upbeat on standalone performance as: 1) the 5% EBITDA fall was much lower compared to peers; 2) value-added products’ sales jumped 62%; and 3) cost reduction of INR800/t in Q4FY19 with drivers for a further INR1,500/t cut in place.
Besides, we are also upbeat on upcoming power PPAs that could drive up JPL’s PLF in ensuing quarters. However, soft prices in Oman and losses in international mining operations are likely to drag FY20 performance.
We see further catalysts such as: 1) probable asset monetisation of $500 mn; 2) potentially higher PLF at JPL; and 3) favourable judgment regarding iron ore fines at Sarda mines, which could provide additional upside to the stock.
However, we are concerned about: 1) further impairment possibility in Australian mining assets; and 2) sustained interest payment of Rs 2.7 bn per annum to JPL on advance received despite the transaction being annulled.