Monday, December 07, 2015

Jindal Steel and Power Ltd: Buy
CMP: Rs.93.60
The scrip of Jindal Steel and Power Ltd, an O P Jindal Group company, is trading above its 50D, 100D, 150D and 21D, SM and EMAs.

Jindal Steel and Power Ltd (JSPL)’s consolidated performance for the September, 2015 quarter was marginally better than Street expectations. Sales at Rs.4,880 crore and operating profit at Rs.976 crore were better than the Street’s estimates of Rs.4,572 crore and Rs.968 crore, respectively. However, the company reported losses of Rs.618 crore due to exceptional items that included an impairment loss of Rs.227 crore in a foreign subsidiary and a foreign exchange loss of Rs.212 crore.

Given the pressure on realisations, the steel segment’s performance was in line, while the power segment disappointed. Steel deliveries declined 8% sequentially to 780,000 tonnes, and long-product prices declined sharply. The segment revenue, however, increased 3% sequentially at the standalone level.

Overall earnings before interest and taxes (EBIT) at Rs.319 crore were better than the Rs.115 crore in the June quarter, though down 32 per cent over the year-ago period. At the consolidated level, international subsidiaries saw an improvement in earnings before interest, tax, depreciation, and amortisation (EBDITA).

However, the power segment EBITt at Rs.188 crore was lower than the Rs.217 crore in the June quarter and Rs.245 crore in the year-ago period, despite higher power production sequentially. During the June, 2015 quarter, company shut down two 250-megawatt (Mw) units. Rising fuel costs due to a higher price for coal hit performance. Higher coal cost in the absence of captive mining is hurting performance and is a key concern of the Street.

The company is restructuring assets by selling power assets from a standalone entity to Jindal Power (96.4% stake). This will include a 6x135-Mw power plant at Angul and 2x55-Mw power plant at Raigarh.

Earlier,  Jindal Steel and Power Ltd (JSPL) told a special court that it was not involved in any conspiracy to get a coal block in Jharkhand and was the only eligible firm to get it.

Jindal Steel said it was looking to cut production costs and bring down its debt by selling some of its non-essential assets in the current fiscal year ending in March.

China makes nearly half the world's 1.6 billion tonnes of steel. With growth slowing at home, it is expected to export a record 100 million tonnes to world markets this year to help address its spare steel-making capacity.

India imposed a 20% import tax on some steel products in September to mitigate the damage to domestic companies.

Buy the shares of the company at Rs.93.60, for short term targets Rs.99-109-117. The scrip could double, in the next 9-12, months. Therefore, those who are having a little patience, can keep on adding the stock on all declines, keeping a SL of Rs.77.
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