Asit C Mehta puts ‘buy’ on Jindal Steel; target Rs 737
Asit C Mehta has recommended ‘buy’ on Jindal Saw with a price-target of Rs 737.2 (implying a forward P/E multiple of 9x to CY09E EPS).
By ET Online |
MUMBAI: Asit C Mehta has recommended ���buy��� on Jindal Saw with a price-target of Rs 737.2 (implying a forward P/E multiple of 9x to CY09E EPS). The total world demand for pipes is estimated at $74 billion (235,171 km) for next five years from 2007-2011. Domestic demand for pipes is around $5.5 billion.
In order to tap growing global as well as domestic demand for pipes, Jindal Steel is undertaking significant capacity addition. Installed capacity will increase from 1,250,000 Mtpa to 1,950,000 Mtpa by 2008 and will be major volume driver. Capacity build up will mainly address growing demand from Middle East and India.
Jindal Steel sold its US operations in November 2007. US operations earned lower EBIDTA margins of 7 per cent to 8 per cent and created a drag on the company���s margins. Divestment of US operations has also infused cash of over $ 200 million and strengthened Jindal Steel���s balance sheet. Sale of US operations along with de-bottlenecking exercises at Jindal Steel���s DI and seamless plant are expected to improve its operating margins from 11.4 per cent in 2007 to 15.3 per cent in CY09E.
Jindal Steel has a strong order book of $1 billion, executable by January 2009. Current order book is equivalent to 1.2x times of Jindal Steel���s 2007 sales (annualized) from Indian operations.
With the removal of export duty on pipes and tubes, the brokerage has revised their recommendation on Jindal Saw. Considering strong global demand for pipes coupled with Jindal Steel���s capacity addition plans, potential for improvement in margins and strong order book, Asit C. Mehta expects Jindal Steel���s EPS to grow from Rs 60.6 (annualized and excluding income from divestment) in 2007 to Rs 81.9 in CY09E.
At the market price of Rs. 574 the stock is trading at P/E of 11.02x for CY08E EPS and 7.01x for CY09E EPS.
In order to tap growing global as well as domestic demand for pipes, Jindal Steel is undertaking significant capacity addition. Installed capacity will increase from 1,250,000 Mtpa to 1,950,000 Mtpa by 2008 and will be major volume driver. Capacity build up will mainly address growing demand from Middle East and India.
Jindal Steel sold its US operations in November 2007. US operations earned lower EBIDTA margins of 7 per cent to 8 per cent and created a drag on the company���s margins. Divestment of US operations has also infused cash of over $ 200 million and strengthened Jindal Steel���s balance sheet. Sale of US operations along with de-bottlenecking exercises at Jindal Steel���s DI and seamless plant are expected to improve its operating margins from 11.4 per cent in 2007 to 15.3 per cent in CY09E.
Jindal Steel has a strong order book of $1 billion, executable by January 2009. Current order book is equivalent to 1.2x times of Jindal Steel���s 2007 sales (annualized) from Indian operations.
With the removal of export duty on pipes and tubes, the brokerage has revised their recommendation on Jindal Saw. Considering strong global demand for pipes coupled with Jindal Steel���s capacity addition plans, potential for improvement in margins and strong order book, Asit C. Mehta expects Jindal Steel���s EPS to grow from Rs 60.6 (annualized and excluding income from divestment) in 2007 to Rs 81.9 in CY09E.
At the market price of Rs. 574 the stock is trading at P/E of 11.02x for CY08E EPS and 7.01x for CY09E EPS.
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