Jindal Steel & Power - Deleveraging continues to take precedence over capex - ICICI Securities

Jindal Steel & Power (JSPL) has reiterated its target to reduce net debt to Rs150bn by FY23E before considering any capex decision. The company highlighted that evacuation of the remaining 7.5mnte iron ore inventory from Sarda mines is proceeding as planned and should be over by end FY21E. Management's outlook on Jindal Power (JPL) was not completely constructive, with competitive pressures from renewables as well as uncertainty on power purchase agreements (PPAs). Management is open to divest JPL assets given suitable price. Boundary issues for Guali iron ore mine (won in auction) needs to be settled with Odisha government before mining can start. Management has plans of putting up a slurry pipeline as and when the uncertainties are ironed out, which can substantially reduce the cost of ore. JSPL has forward procured coking coal and guided 8mnte production in FY22E. We maintain ADD.

Q2FY21 Key concall takeaways

- Volume guidance: JSPL has guided 3.8mnte for H2FY21 (~7.3mnte production for FY21E) and 8mnte for FY22. JSPL has been producing 4,000te/day from its Angul DRI plant and is planning to ramp up to 6,000te/day. Blast furnace is running at 10,000te/day and will soon ramp up to 11,000te/day. We have increased our sales volume estimate for FY21/22E.

- Coking coal: With coking coal prices coming down from US$128/te, JSPL has done forward booking till February 2021 at US$107-108/te. With various cost saving measures, cost of production has much more headroom to come down.

- Iron ore mines: Management has mentioned captive ore evacuation from Sarda mines will not face any constraint. There is a mismatch in physical positon and the drawing of Guali mine in the map. JSPL has raised the issue with Odisha government and considers the business worth doing, if government rectifies the coordinates.

- Net debt to reduce to Rs 150bn by FY23E; any capex decision will contemplated post meeting the target: JSPL will not incur any capex till the company reaches its planned debt level of Rs150bn. JSPL stays on course to reduce net debt by Rs 50-60bn in FY21E ( ex-Oman)

- Oman full and final sale: JSPL, in its essential estimates, determined there are no legal hurdles and only last few approvals are pending. It is expecting the sale by Q3FY21. Management also clarified that there will be no advances from JSPL to promoter entities to whom the sale is concluded.

- Slurry pipeline: Management has indicated that JSPL has received approval on its slurry pipeline layout which will lower the miner's iron ore transportation cost from Odisha mines to Angul plant to Rs1,100/te.

Shares of JINDAL STEEL & POWER LTD. was last trading in BSE at Rs.189.75 as compared to the previous close of Rs. 191.4. The total number of shares traded during the day was 728105 in over 4848 trades.

The stock hit an intraday high of Rs. 194.7 and intraday low of 187.3. The net turnover during the day was Rs. 138273852.

Source : Equity Bulls

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