We reiterate ‘BUY’ on Jindal Steel & Power (JSPL) with a target price of Rs 350 as the company reported highest-ever Ebitda (slightly ahead of consensus) in past 12 quarters led by: (i) spurt in domestic steel volumes, up 12% y-o-y to 915kt; (ii) Oman operations posting highest-ever Ebitda of $140/t; and (iii) power division continuing to report Rs 3.5 bn plus quarterly Ebitda, despite rise in fuel cost. Going ahead, we believe JSPL will continue to reap the twin benefits of rising volumes and deleveraging . At CMP, the stock is trading at 5.8x FY20E Ebitda, in line with peers and at lower end of its 10-year band.
Q3FY18 performance reaffirms the turnaround: JSPL reported best-ever Ebitda in past 12 quarters fuelled by spurt in domestic volumes (up 12% y-o-y; 13% q-o-q) and best-ever performance by Jindal Shadeed that clocked Ebitda of $140/t. Standalone PAT level loss at Rs 767 mn was the lowest ever. Going ahead, we believe the company will continue to benefit from robust domestic longs prices (short term) and ramp-up in Angul volumes (long term).
Ramp-up at Angul to be the game- changer: We expect JSPL to turn profitable once again in Q4FY18 at PAT level for the first time since Q2FY15, primarily propelled by volume ramp-up at Angul (incremental volume expected at 600kt). Ramp-up of international mining capacity and stable performance by Oman division are likely to be additional growth enablers. Any uptick in power demand will be additional kicker .
Outlook and valuations: Powered by steel, maintain Buy
We reiterate our favourable stance on JSPL as its operating leverage story is playing out well. With international subsidiaries also likely to contribute to Ebitda, we expect the company to deliver Ebitda CAGR of 27% through to FY20. We maintain ‘BUY/SO’ with an unchanged TP of Rs 350. At CMP, the stock is trading at 5.8x FY20E Ebitda, which is at the lower end of its 10-year historic trading average and global peers.