1QFY21 consolidated EBITDA was at an all-time high and came in 32% ahead of our estimate. No let-up in deleveraging as net debt declined by Rs 13.2bn (-4% q-o-q) and the leverage ratio improved to 4.29x. Focus on deleveraging and volume outperformance supports Jindal Steel and Power’s investment
case; reiterate ‘buy’ rating and Rs 240 TP.
Strong performance continues as standalone and consolidated results beat expectations: JSP delivered strong results in 1QFY21, with record consolidated Ebitda of Rs 23.8bn (+10% y-o-y), 32% ahead of our estimate, as both standalone and power businesses surprised positively. Reported Ebitda, however, included the benefit of low-cost iron ore from Sarda mines, which we treat as exceptional (we assume the benefit to be Rs 1.5bn). Adjusted for the one-off, consolidated Ebitda was still 24% ahead of our estimate. Standalone Ebitda of Rs 18.3bn rose 14% y-o-y and was 33% ahead of our estimate (22% beat after adjusting for one-off). The standalone beat was driven by higher than expected realisations (2% ahead of our expectation), as well as lower than expected costs. Standalone Ebitda/t of Rs 11,720 was up 10% y-o-y, hitting the highest level in 8 quarters. Jindal Power (JPL) continues to benefit from lower coal costs as it reported Ebitda of Rs 3.68 bn (+4% y-o-y), 46% above our estimate.
Management have maintained their debt reduction commitment with a target to bring down debt to Rs 250bn in the next two years. While the target seems ambitious the effort is clearly visible. JSP remains our top pick in the ferrous space: reiterate ‘buy’ rating and Rs 240 TP: We are not changing our estimates and reiterate our Rs 240 TP for JSP. Its majority exposure to long products, resilience from the stable power business, volume outperformance, and unflinching focus on deleveraging makes JSP our only ‘buy’ rated stock in the India steel sector.