BSE ID : 532286 NSE ID : JINDALSTEL
RECOMMENDED PRICE 158.15
PEAK FROM RECO 501.60 217.17%
CURRENT PRICE 361.00 128.26%
JSPL's business segments include Iron & Steel, Power and Others. We initiate with a BUY for a price target of Rs. 472 representing an upside of 204.5% from the CMP of Rs 158.15 over the next 21 months.
Jindal Steel and Power Limited (JSPL) has operations in India and overseas. JSPL’s business segments include Iron & Steel, Power and Others. JSPL’s steel division has a total capacity of 9.94 million tonnes of iron making capacity and 8.9 million tonne of crude steel capacity. It has a integrated steel plants at Raigarh (3.4 MTPA), Angul (5 MTPA) & Oman (1.5 MTPA). Its Power Division (Jindal Power Ltd) has 3,400 MW power plant at Tamnar, Chhattisgarh. It is also backward integrated into mining with assets in Australia, Mozambique and South Africa.
We believe that the steel industry is headed for a cyclical upturn given that China has undertaken intiatives to cut excess capacities citing environmental issues. Following this we have seen a rebound in global steel prices. In India too the government measures to check dumping have resulted in prices firming up. With prices set to rally there is always the threat of imports increasing, especially flat products. However given the fact that JSPL is primarily into long products it should remain unaffected.
Post capex completion at Angul, we expect JSPL to near double its revenues by FY20. This coupled with the fact that coal linkages with Coal India have been firmed up for five years and the domestic iron ore prices are quoting at lows, the steel business is expected to do well. The power business is also expected to perform well given that FSA & PPAs are in place. Further with the sale of its power asset Tamnar I (1,000 MW) already inked the company should be able to leverage its gearing to a certain extent.
We expect revenues to grow at a CAGR of 22.7% to Rs. 39,184 crores while EBITDA is expected to grow at a faster clip of 27% CAGR to Rs. 9,615 crores by FY20. Net earnings are expected to turn the corner in FY18 and should scale to Rs. 1,954 crores by FY20. We initiate with a BUY for a price target of Rs. 472 (target 7.0X FY20 EV/EBITDA) representing an upside of 204.5% from the CMP of Rs.158.15 over the next 21 months.
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