1QFY2019 Result Update | Steel & Power

August 14, 2018

Jindal Steel & Power

BUY

CMP

`200

Target Price

`320

Investment Period

12 Months

Performance Update

INR Cr.

Q1FY19

Q1FY18 % chg. (yoy) Q4FY18 % chg. (qoq)

Stock Info

Net Sales

9540

5607

8599

Sector

Steel & Power

Operating profit

2277

1353

1699

33.96

Market Cap (` cr)

19,329

Net Debt (` cr)

42,680

OPM (%)

(26bp)

400bp

Beta

2.6

Adj. PAT

110

-420

-425

52 Week High / Low

294/112

Avg. Daily Volume

872,696

Source: Company, Angel Research

Face Value (`)

For Q1FY2019, JSPL reported above expectation results on all fronts. Company

BSE Sensex

37,644

Nifty

11,355

registered revenue growth of 70% yoy/12% qoq to ` 9,540cr against `5,607cr/

Reuters Code

JNSP.BO

Bloomberg Code

JNSP IN

`8,599cr respectively on consolidated basis. Domestic EBIDTA/tonne improved to

`13,800 in the quarter under review from `12,873 (Q4FY18)/ `9,259 (Q1FY2018)

Shareholding Pattern (%)

due to improvement in sales realization. However steel production has been

Promoters

58.7

MF / Banks / Indian Fls

6.9

reduced due to temporary shutdown of Angul and Raigarh plants during the

FII / NRIs / OCBs

19.2

quarter.

Indian Public / Others

15.2

JPL: Power segment has reported EBIDTA growth of 18% qoq to `314cr as against

Abs.(%)

3m 1yr

3yr

`265cr. Margins improved to 32% vs. 28% in Q4FY2018 owing to reduction in coal

Sensex

6.0

21.0

34.0

JSPL

(19.0)

60.0

143.0

cost and improvement in PLF to 37% as against 31% in Q4FY2018. We believe that

availability of coal would improve further owing to implementation of coal tolling

arrangement of tenders of State Government with generators and in long term by

introduction of Commercial Mining as proposed by GOI.

Outlook & Valuation: We maintain our Buy recommendation with a slight

3years performance chart

reduction in Target Price to `320 from `327 (due to increased net debt

350

level). However, we expect JSPL to perform well in coming years owing to

300

improving realization in steel segment, limited addition of steel capacity in near

250

term and improving demand of steel going forward. We expect power segment to

200

150

perform well on account of improving power demand situation and various effort

100

by GoI for availability of coal to power generator.

Key Financials

Y/E March (` cr)

FY17

FY18

FY19E

FY20E

Net Sales

20,409

27,069

35,918

44,048

Source: Company, Angel Research

% chg

EBIDTA

4,337

5,882

8,097

10,580

% chg

EBITDA (%)

21%

22%

23%

24%

EPS (Rs)

(26)

(17)

P/E (x)

209

P/BV (x)

0.6

RoE (%)

0.3

5.9

Kripashankar Maurya

RoCE (%)

0.6

2.9

5.7

9.5

022-39357800 Ext: 6004

EV/EBITDA

13.5

9.9

7.1

5.0

[email protected]

Source: Company, Angel Research

Valuation done based on 13^th August 2018 closing price

Please refer to important disclosures at the end of this report

JSPL | 1QFY2019 Result Update

Exhibit 1: 1QFY2019 Performance

Y/E March (` cr)

1QFY19 1QFY18

% chg. (yoy) 4QFY18

% chg. (qoq) FY2018 FY2017

% chg

Total Operating Income

9665

5669

8599

27383

21051

Net raw material

3771

1835

106

3021

9461

7083

(% of Sales)

-3

Employee Cost

245

232

238

956

914

(% of Sales)

-18

Other Expenses

3372

2249

3641

-7

11085

8717

(% of Sales)

-1

-24

Total Expenditure

7389

4316

6900

21502

16714

Operating Profit

2277

1353

1699

5882

4337

OPM (%)

-1

Interest

973

901

1071

-9

3866

3441

Depreciation

1040

962

960

3883

3949

-2

Other Income

-51

PBT

264

-510

-332

-179

-1867

-3053

(% of Sales)

-9

-4

-171

Tax

154

-89

-240

-503

(% of PBT)

-2

Reported PAT before MI & Extra Ord. Items

110

-421

-427

-1627

-2550

PATM

1.1

-7.4

-5.0

-5.9

-12.1

Minority Interest

P/L of Ass. Co.

Extra-ordinary Items

-577

-372

Reported PAT

110

-420

-425

-1627

-2550

Source: Company, Angel Research

Company background

JSPL is part OP Jindal Group with presence in steel, power and mining sectors.

JSPL has capacity of 10.6 MTPA crude steel and 3,400MW of power generation

capacity through its subsidiary Jindal Power Limited (JPL).

JSPL operates the largest coal based sponge iron plant in the world and has an

installed capacity of 3 MTPA (million tonnes per annum) of steel at Raigarh in

Chhattisgarh. Moreover, it has set up a 0.6 MTPA wire rod mill and a 1 MTPA

capacity bar mill at Patratu, Jharkhand, a medium and light structural mill at

Raigarh, Chhattisgarh and a 2.5 MTPA steel melting shop and a plate mill to

produce up to 5 meter-wide plates at Angul, Odisha. In Oman (Middle East), the

company has a 2 MTPA integrated steel plant with a 1.5 MTPA gas-based Hot

Briquetted Iron (HBI) plant.

JSPL has installed power capacity of

3,400MW through its wholly owned

subsidiary Jindal Power Limited (JPL). In FY18, JPL had Power Purchase Agreement

(PPA) of 1,350MW and it operates at 35-37% utilization.

August 14, 2018

JSPL | 1QFY2019 Result Update

Valuation Assumption

We value the stock on Asset based approach, valuing each segment’s assets at

discount to its peer companies, while applying multiple to respective asset. We

arrive at the SOTP based target price of ` 320.

Exhibit 2: Asset Based SOTP Valuation

Segments

Capacity

Multiple (X)

Total INR Cr.

Power- (EV/MW)*

3,400

13,600

Steel- (EV/Tonne)#

10.6

5,400

57,240

Consol Enterprise Value (A)

70,840

Add

CWIP (B)

3,877

Cash(C)

468

Subtotal (D )= (A)+(B)+(C)

75,185

Less

Debt FY18 (E)

42,680

Equity Value ( F)= (D)-(E)

32,505

No of share (G)^

102

Value per share INR (F)/(G)

320

CMP

200

Upside

60%

Source: Company, Angel Research

Note:

*Disinvestment announced in May 2016 by JSW Energy to acquire 1,000MW

(4X250) Tamnar Thermal Power Plant from JSPL.

Valuing Power segment by applying multiple of `4cr/MW at 22% discount to JSW

Energy’s of EV `5.1cr/MW.

# Valuing the steel segment by applying multiple of `5,400cr/MTPA at 26%

discount to JSW Steel’s EV/Tonne of `6,788cr/MTPA.

^ Factoring issuance of warrant shares.

Exhibit 3: Peer Asset Valuation

Particular

JSW steel Tata Steel JSW Energy Tata power

NTPC

EV/Tonne

6,788

5,393

EV/MW

5.1

6.2

4.7

Crude steel Capacity (MTPA)

Power Generation Capacity (MW)

4,437

10,757

53,651

Source: Company, Angel Research

August 14, 2018

JSPL | 1QFY2019 Result Update

Consolidated Financial Statement

Y/E March (` cr)

FY17

FY18

FY19E

FY20E

Total operating income

21,051

27,383

35,918

44,048

% chg

Total Expenditure

16,714

21,502

27,821

33,468

Raw Material

6,535

9,378

11,709

14,536

Personnel

914

956

1,268

1,555

Purchase of finished goods

265

324

359

440

Others Expenses

8,999

10,843

14,484

16,937

EBIDTA

4,337

5,882

8,097

10,580

% chg

(% of Net Sales)

20.6

21.5

22.5

24.0

Depreciation& Amortisation

3,949

3,883

4,114

4,234

EBIT

388

1,999

3,983

6,346

% chg

(145)

415

(% of Net Sales)

Interest & other Charges

3,441

3,866

Other Income

Extraordinary Items

(372)

(577)

Recurring PBT

-2,671

-1,287

121

2,483

% chg

(28)

(52)

(109)

1,960

Tax

-503

-240

571

PAT (reported)

-2,168

-1,047

1,912

% chg

(24)

(52)

(109)

1,960

(% of Net Sales)

-10.3

-3.8

0.3

4.3

Basic & Fully Diluted EPS (Rs)

-26

-17

% chg

(18)

(36)

(106)

1,960

Source: Company, Angel Research

August 14, 2018

JSPL | 1QFY2019 Result Update

Consolidated Balance Sheet

Y/E March (` cr)

FY17

FY18

FY19E

FY20E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

29,959

30,283

30,376

32,288

Shareholders Funds

30,051

30,380

30,473

32,385

Equity Share warrant

Minority Interest

647

440

338

235

Total Loans

39,958

39,198

38,824

34,362

Other Liabilities

6,430

6,074

8,412

8,744

Total Liabilities

77086

76097

78052

75731

APPLICATION OF FUNDS

Net Block

66,934

69,550

67,732

65,997

Capital Work-in-Progress

8,714

3,877

1,947

1,850

Investments

368

146

Long Term Loans & Advances

Current Assets

13,022

14,313

18,245

21,727

Inventories

3,599

4,960

6,396

7,241

Sundry Debtors

1,717

1,826

2,423

2,972

Cash & Cash Equivalent

477

468

254

344

Loans & Advances

6,841

6,589

8,743

10,722

Investments & Others

387

471

429

450

Current liabilities

13,489

13,133

17,488

20,765

Net Current Assets

-467

1,180

758

963

Other Non Current Asset

1,537

1,343

7,470

6,775

Total Assets

77086

76097

78052

75731

Source: Company, Angel Research

August 14, 2018

JSPL | 1QFY2019 Result Update

Cash flow

Y/E March (` cr)

FY17

FY18

FY19E

FY20E

Profit before tax

(2,671)

(1,287)

121

2,483

Depreciation

3,949

3,883

4,114

4,234

Change in Working Capital

Interest / Dividend (Net)

3,441

3,866

Direct taxes paid

(503)

(240)

571

Others

2,582

(516)

(701)

(114)

Cash Flow from Operations

6,799

5,706

7,427

11,040

(Inc.)/ Dec. in Fixed Assets

(2,354)

(2,000)

(2,499)

(2,498)

(Inc.)/ Dec. in Investments

356

175

(46)

(45)

Cash Flow from Investing

(1,998)

(1,825)

(2,545)

(2,543)

Issue of Equity

1,200

Inc./(Dec.) in loans

-2875.18

-760.44

-374.00

-4462.00

Others

(2,181)

(4,305)

(4,516)

(3,946)

Cash Flow from Financing

(5,057)

(3,866)

(4,890)

(8,408)

Inc./(Dec.) in Cash

(256)

(8)

Opening Cash balances

503

247

262

254

Closing Cash balances

247

263

254

344

Source: Company, Angel Research

Key Ratios

Y/E March

FY2017

FY2018

FY2019E

FY2020E

P/E (on FDEPS)

208.6

10.1

P/CEPS

10.9

6.8

4.6

3.1

P/BV

0.6

EV/Sales

2.9

2.1

1.6

1.2

EV/EBITDA

13.5

9.9

7.1

5.0

EV / Total Assets

0.8

0.7

Per Share Data (Rs)

EPS (Basic)

-26.2

-16.8

1.0

19.8

EPS (fully diluted)

-25.0

-16.0

0.9

18.8

Cash EPS

18.4

29.3

43.5

63.5

DPS

0.0

Book Value

310

314

315

335

Returns (%)

ROCE

0.6

2.9

5.7

9.5

Angel ROIC (Pre-tax)

0.6

2.8

5.3

8.6

ROE

-8.5

-5.3

0.3

5.9

Turnover ratios (x)

Inventory / Sales (days)

Receivables (days)

Payables (days)

Working capital cycle (ex-cash) (days)

Source: Company, Angel Research

August 14, 2018

JSPL | 1QFY2019 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Company Name

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

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Ratings (Returns):

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

Reduce (-5% to -15%)

Sell (< -15%)

August 14, 2018