Management reiterated domestic volume growth trajectory from 4.5mnte in FY18E to 7.5/8mnte in FY20E. The current blast furnace is producing at 6,000tpd, and utilising SMS1, while CGP-DRI is waiting commissioning of new BoF to ramp up production. Once the keenly awaited commissioning of BoF fructifies, the increase in production as well as earnings is expected to reflect from Q4FY18. Increased earnings and possibility of deleveraging, after accounting for increased working capital requirements, is key to our FY20 target price of Rs 267/share. We believe that the refinancing of overseas loans is not going to be a major problem given the buoyancy in Oman earnings. The stake sale in Oman (as and when it happens) is a near term lever to counter requirement of working capital. Also, JSPL has been able to sell part stake of the captive power assets to group entity Nalwa sponge last year thereby allowing classification of same as captive power for the group entity and has done sell and lease back of oxygen assets to SREI infra this year.
To top that we have seen rights issued to promoter in FY18. We feel company has many such levers in its disposal to take care of near term working capital requirements till the time Angul ramps up. Maintain BUY. Naveen Jindal has shared a live streaming video (in twitter) highlighting the progress of the BoF which is scheduled for completion on 15th December, 2017. As the video suggests, it’s a 250te converter with 36-40heats/day (~8,000tpd of steel or ~2.75mtpa) which will allow production both from the newly commissioned Blast Furnace as well as the CGP-DRI combination and will be the key to ramp up production. To note here, capacity in Angul can increase a bit more once JSPL secures consent to operate (CTO) for higher volumes given that the current peak capacity of 5.3mnte builds in BF capacity of 3.5mnte while it can easily produce 4mnte of hot metal.
