Jindal steel and Power’s (JSP’s) Q1FY18 consolidated Ebitda grew 37% y-o-y (-13% q-o-q) to Rs 13.5 bn (in-line). Interest cost rose 4% q-o-q to Rs 9 bn due to an increase in Libor. Cash profit was Rs 5.4 bn (v/s cash loss of Rs 3.2 bn in Q1FY17). Net debt was unchanged q-o-q, despite an increase in working capital. Standalone (S/A) margins were stable: Ebitda grew 14% y-o-y to Rs 7.5 bn, a miss of 6% due to volumes. Sales grew 4% y-o-y to 810kt (est. of ~860kt). There was an increase in inventory due to GST implementation. Pellet sales declined 21% q-o-q to 610 kt, as exports were hurt by weak prices. Ebitda per ton declined Rs 676 q-o-q to Rs 9,253, on expected line.
Jindal Power delivered strong operating performance: Ebitda rose 23% q-o-q, 157% y-o-y, to Rs 4.7 bn on 11pp q-o-q increase in PLF to 43%. JPL benefited from seasonally strong demand in the merchant market. Global ventures (GV): Oman continues to deliver strong Ebitda, which was unchanged q-o-q at $32m. Ebitda from other GVs turned negative because Wollongong mining was shut on contractor insolvency.
Angul expansion to drive strong earnings growth: The new blast furnace commissioned on 27 May is likely to record volume growth in subsequent quarters. After commissioning of BOF later in the year, we expect JSP to derive full benefit from the expansion. Over FY17-19, we expect S/A steel volume CAGR of 32% to 5.8mt, and consolidated Ebitda CAGR of 30% to Rs 79 bn.
JSP is likely to benefit from an improvement in the underlying drivers (higher coking coal prices, domestic coal supply, pellet export prices, and domestic long product prices), of earnings growth. Maintain Buy.
Company description: Jindal Steel & Power has steel-making capacity of 3mtpa at Raigarh, 1.5mtpa at Angul and 2mtpa at Shadeed Oman. Its assets are spread over various mineral-rich countries. JSPL has captive iron ore mines. JSP has set up 3400MW power asset at coal pit head in Chhattisgarh. It also has multiple coal resources overseas, mainly in Mozambique, South Africa, Australia and Indonesia.
