Buy Jindal Steel & Power, target Rs 180: JM Financial
Buy Jindal Steel & Power at a price target of Rs 180.
By ETMarkets.com | Updated:
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JM Financial has a buy call on Jindal Steel & Power with a target price of Rs 180.
The current market price of Jindal Steel & Power is Rs 165.85.
Time period given by the brokerage is 2 quarters when Jindal Steel & Power price can reach the defined target.
Investment rationale by the brokerage:
Debt Reduction: Management aims to bring down its debt (Rs 40,000 crore as of December 2018) to zero over the next 3-4 years (2021-22). To further improve the company’s performance and balance sheet it plans to: a) divest stake in Middle-East operations, b) sell its non-core assets and c) further reduce costs aided by improved operating efficiency. Steel segment is beginning to witness improvement in performance primarily on account of: 1) improved operating efficiencies, 2) higher realizations and 3) better product mix. Management has guided domestic steel volumes at nearly 5.2mln ton in FY19 which expected to rise to 6.5 mln ton in FY20. For the Oman operations volumes are expected at 2 mln ton in FY19, rising to 2.4 mln ton in FY20.
Railways: After the contract to supply 1 lakh tonne of rails in August 2018, the company now has emerged as the lowest bidder for 4.5 lakh tonne railway order. We believe given few competitors (barring SAIL) Railways could emerge as a major volume driver for the company by FY20/21.
Q3FY19 Result: On a consolidated basis the company reported 37 per cent YoY growth in turnover to Rs 9580 crore along with EBITDA rising 29 per cent YoY to Rs 2077 crore and profit before tax at Rs 14 crore. For the quarter the net sales realization (NSR), on a blended basis, increased by approximately Rs 1,700 per ton and EBITDA per ton also rose by around Rs 1,000.
Valuation: Stock trades 6.44/5.64x FY20/21 EV/EBITDA valuations and remains attractive at present levels.
Key risks: higher iron ore prices, weaker than expected steel prices, slower than expected demand revival and slower than expected volume growth.
The current market price of Jindal Steel & Power is Rs 165.85.
Time period given by the brokerage is 2 quarters when Jindal Steel & Power price can reach the defined target.
Investment rationale by the brokerage:
Debt Reduction: Management aims to bring down its debt (Rs 40,000 crore as of December 2018) to zero over the next 3-4 years (2021-22). To further improve the company’s performance and balance sheet it plans to: a) divest stake in Middle-East operations, b) sell its non-core assets and c) further reduce costs aided by improved operating efficiency. Steel segment is beginning to witness improvement in performance primarily on account of: 1) improved operating efficiencies, 2) higher realizations and 3) better product mix. Management has guided domestic steel volumes at nearly 5.2mln ton in FY19 which expected to rise to 6.5 mln ton in FY20. For the Oman operations volumes are expected at 2 mln ton in FY19, rising to 2.4 mln ton in FY20.
Railways: After the contract to supply 1 lakh tonne of rails in August 2018, the company now has emerged as the lowest bidder for 4.5 lakh tonne railway order. We believe given few competitors (barring SAIL) Railways could emerge as a major volume driver for the company by FY20/21.
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Power: Coal prices are down by 15 per cent from its peak levels few months back. This in addition to better sourcing & sufficient availability of Coal is expected to drive power segments performance in our view.Q3FY19 Result: On a consolidated basis the company reported 37 per cent YoY growth in turnover to Rs 9580 crore along with EBITDA rising 29 per cent YoY to Rs 2077 crore and profit before tax at Rs 14 crore. For the quarter the net sales realization (NSR), on a blended basis, increased by approximately Rs 1,700 per ton and EBITDA per ton also rose by around Rs 1,000.
Valuation: Stock trades 6.44/5.64x FY20/21 EV/EBITDA valuations and remains attractive at present levels.
Key risks: higher iron ore prices, weaker than expected steel prices, slower than expected demand revival and slower than expected volume growth.
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