Jindal Steel & Power - Continues to deleverage - ICICI Securities

Jindal Steel & Power (JSPL) stands out in the Indian metals space by virtue of its clear intent to deleverage and execution towards that end. Reported net debt for Q2FY21 (chart 1) stood at Rs289bn, with Rs53.6bn debt reduction via Oman divestment. JSPL stays on course to reduce its net debt to Rs150bn by FY23. Jindal Power (JPL) has been seeing a gradual increase in power purchase agreements (PPAs) with 38% of the capacity tied up. The key risk in our view is the elevated steel spread in the sector. JSPL reported an in-line Q2FY21 - for both standalone and Jindal Power (JPL) operations. Ex-Oman (JSPL Shadeed assets and liabilities have been classified as 'assets and liabilities held for sale'), the consolidated EBITDA was also in-line at Rs27bn. Sales volumes were disclosed earlier while EBITDA/te for the steel business at ~Rs13,000/te matched our estimate. Upgrade to ADD with the target price unchanged at Rs213/share.

- Rs53.6bn of debt reduced on account of JSPL Shadeed sale to Templar Investments (promoter entity). While approval of the 51% stake sale is awaited from lenders to JSPL Shadeed, JSPL has classified the assets and liabilities of Jindal Shadeed (owner of Oman business operations) as 'assets and liabilities held for sale'. This leads to a debt reduction of Rs53.6bn. Also US$25mn will come as an equity contribution, of which ~50% has been received.

- Steel and power business performance largely in-line. Steel business EBITDA at Rs13,000/te is at a multi-quarter high. While this is prospective for deleveraging in the absence of any meaningful capex, it also highlights the maturity of the cycle. JPL has seen ~Rs1.14bn provision on account of surcharge.

- PPA profile of JPL - 38% of the capacity tied up. 1,290MW capacity is tied up from 3,400MW power plant in Tamnar. JPL has been declared L-1 bidder under Pilot Scheme-II tender by PFC Consulting. 105MW of the same will be serviced from Tamnar-I (1,000MW) while 315MW will be serviced from Tamnar-II. PPA for 1,125MW will therefore be serviced from Tamnar-II (first 1,200MW).

- Upgrade to ADD, post the recent correction. We maintain our target price for the stock at Rs213/share, implying a P/B of 0.6x. Deleveraging to reduce net debt to Rs150bn by FY23E now looks realistic. However, cyclical high EBITDA/te restricts our upgrade to ADD.

Shares of JINDAL STEEL & POWER LTD. was last trading in BSE at Rs.191.4 as compared to the previous close of Rs. 189.6. The total number of shares traded during the day was 927635 in over 10669 trades.

The stock hit an intraday high of Rs. 195.3 and intraday low of 184.5. The net turnover during the day was Rs. 176913455.

Source : Equity Bulls

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