Target: ₹583
CMP: ₹546.10
Jindal Steel & Power (JSPL) reported lower-than-expected consolidated adj EBITDA of about ₹1,520 crore, down 49 per cent q-o-q and adj EBITDA/tonne of ₹7,557, down about ₹9,642/tonne q-o-q. We believe EBITDA/tonne during the quarter has bottomed as benefit of lower coking coal prices and stable realisation will improve margins in H2-FY23. JSPL prepaid its entire overseas long-term debt and hence net debt reduced ₹670 crore q-o-q to ₹700 crore.
We believe JSPL should be net-cash company in FY25 if no new capex or major cash outflow is announced. JSPL is in the process of cleaning up its balance sheet and is evaluating the investments made at Jindal Steel, Mauritius (JSPML). JSPL has invested ₹575 crore and has an outstanding loan of ₹12,079 crore at JSPML.
The ongoing expansion of 6.3 mtpa (capex of ₹18,000 crore) will increase capacity to 15.9 mtpa by FY25. It is expected to augur 11 per cent volume CAGR over FY22-25. Increased raw material integration (commissioning of coal mine, slurry pipeline and increased pellet volume) along with better product mix should augur well in earnings in the next four years.
Rollback of export duty on steel products improves steel business outlook.
Hence, we increase our target price to ₹583 (earlier: ₹467), valuing at 4.5x FY24 & FY25 average EV/EBITDA.
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