JSPL has achieved Q4FY19 production/sales volume (highest ever) of 1.5mt/1.45mt. After near stagnant sales volumes over FY15-18 at 3.1-3.8mt, FY19 sales volume at 5.12mt translates in to a 36% y-o-y growth.
We view Jindal Steel & Power (JSPL) clocking highest-ever quarterly volume of 1.5 mt in Q4FY19 as a significant milestone for the company. We perceive a higher probability of the company meeting its FY20 guidance of 6.5 mt as: 1) 1.8 mtpa DRI plant is expected to augment existing volumes; 2) robust domestic demand (consumption growth estimated at 5-6% y-o-y); and 3) limited capacity ramp up by peers. Based on Q4FY19 volumes and resumption of 1.8 mtpa DRI plant we revise up FY20/FY21E sales volume at 8%/4%, leading to a 4% upwards revision in FY20/FY21E Ebitda. Maintain ‘Buy’ with revised TP of `225 (earlier `200), implying an unchanged exit multiple of 6.4x September 2020 Ebitda.
JSPL has achieved Q4FY19 production/sales volume (highest ever) of 1.5mt/1.45mt. After near stagnant sales volumes over FY15-18 at 3.1-3.8mt, FY19 sales volume at 5.12mt translates in to a 36% y-o-y growth. Going ahead, we see the company at a vantage point as: 1) other major peers, except SAIL, are not ramping up capacity in FY20; and 2) domestic demand potential remains fairly benign at 5-6% y-o-y. With FY19E domestic sales volume growth of 36% y-o-y achieved solely on blast furnace ramp up, we expect FY20 production volumes to be augmented further by resumption of the 1.8 mtpa DRI plant.
We estimate FY20/FY21 annual volume growth of 22%/8% to 6.25mt/6.75mt (management’s guidance 6.5mt in FY20). Rolling over to September 2020 EBITDA, our revised TP works out to INR225 (earlier INR200). The stock is trading at 5.9x FY21E Ebitda. We maintain ‘BUY/SO’.
We see JSPL better placed than peers in a challenging price environment owing to its imminent production ramp up. The company’s segments include iron & steel, power and other. The other segment consists of aviation services and machinery division.