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Jindal Steel & Power Limited
HOLD Target Price ; Rs 765
CMP: Rs.694.90 Market Cap: Rs.646812.9mn. Date: 13 Jan,2010.
Key Ratios:
Particulars FY08
A
FY09
A
FY10E FY11E
OPM(%) 40 34 36 36
NPM(%) 23 20 19 20
ROE(%) 33 29 19 18
ROCE(%) 23 21 15 15
P/BV(x) 9.14 2.32 9.73 7.94
P/E(x) 27.5 8.00 50.86 43.34
EV/EBDITA(x) 5.61 4.07 29.9 27.3
Debt
Equity(x)
1.04 0.94 0.82 0.74
Key Data:
Sector Steel
Face Value 1.00
52 wk. High/Low
(Rs.)
778.00/120.35
Volume (2 wk.
Avg.)(lakh)
4.71
SYNOPSIS
• JSPL is a leading player in Steel, Power,
Mining, Oil & Gas and Infrastructure. With
an annual turnover of over US $2.00 billion
(Rs. 10,000 crore).
• JSPL is the largest private sector investor in
Chhattisgarh.
• JSPL has consistently tapped new
opportunities by increasing production capacity, diversifying investments, and
leveraging its core capabilities to venture into new businesses.
• The company’s expansion Projects in Orissa, a 12.5 million ton integrated steel
plant and 2600 MW Captive Power Plant in phases, with a total investment of over US $
8.00 billion (Rs. 40,000 crore). The first phase
of 3 million ton is expected to be commissioned by 2011.
• The topline of the company are expected
to grow at a CAGR of 12% over 2008A to
2011E.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
[email protected]
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
[email protected]
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Table of Content
Investment Highlights ................................................................................................................... 3
Peer Group Comparison ............................................................................................................. 6
Financials ....................................................................................................................................... 6
Charts ............................................................................................................................................. 9
Outlook and Conclusion ........................................................................................................... 11
Industry Overview....................................................................................................................... 11
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Investment Highlights
• Results Updates (Q2 FY10)
The bottomline of the company for the quarter stood at yoy that is
Rs.3050.10mn from Rs.4500.00mn of same period of last year. Total revenue
for the second quarter stood at Rs.15982.40mn from Rs.22161.20 which is
27.9% decreased than that of a year ago period. EPS for the quarter stood
at Rs.3.28 per equity share of Rs.1.00 each. Equity Capital has change from
154.7 to 930.8.
Expenditure of the company decreased 29% YoY to Rs.10468.90mn from
Rs.14716.60mn of same period of last year. Interest expenses for the quarter
stood at Rs.545mn. OPM & NPM for the quarter stood at 36% and 19%
respectively.
Quarterly Results - Standalone (Rs in mn)
As at Sep - 09 Sep - 08 %Change
Net Sales 15982.40 22161.20 (27.9)
Net Profit 3050.10 4500.00 (32)
Basic EPS 3.28 29.09
Equity Capital 930.8 154.7
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• Jindal Power Limited files DRHP with SEBI (BSE)
Jindal Power Ltd. (JPL), a subsidiary of the Jindal Steel & Power Ltd ,
proposes a Public Issue of equity shares through 100% book building
method in accordance with the Securities and Exchange Board of India
(Issue of Capital and Disclosure Requirements) Regulations, 2009 and has
filed a Draft Red Herring Prospectus with the Securities and Exchange
Board of India.
Pursuant to this, JPL proposes to raise INR 7,200 Crores and intends to utilize
the net proceeds of the Issue to part finance the construction and
development of various Thermal Power Projects and party for the General
Corporate Purposes.
• Setting up hydro electric power project (BSE)
JPL will be setting up Subansiri Middle 1600 MW hydro electric power
project in
Arunachal Pradesh on river Kamla, a Tributary of river Subansiri pursuant to
Memorandum of Agreement entered into by and between Government
of Arunachal Pradesh, Hydro Power Development Corporation of
Arunachal Pradesh Ltd. and JPL.
JPL has received Survey License from Ministry of Energy, Nepal for setting
up 220 MW Chainpur Seti hydro electricity project in Nepal.
• Expansion Projects
o Orissa
A 12.5 million ton integrated steel plant and 2600 MW Captive Power
Plant in phases, with a total investment of over US $ 8.00 billion (Rs. 40,000
crore). The first phase of 3 million ton is expected to be commissioned by
2011.
o Jharkhand
An 11 million ton integrated steel plant and 2600 MW Captive Power Plant
in phases, with a total investment of over US $ 6.00 billion (Rs. 30,000 crore).
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o Chhattisgarh
7 million ton steel plant, 2 million ton cement plant and 1600 MW Captive
Power Plant with a total investment of over US $ 5.20 billion (Rs. 26,000
crore).
Jindal Power Limited, an affiliate of JSPL, is expanding the capacity of its
existing 1000 MW O.P.Jindal Super Thermal Power Plant at Tamnar by
adding 2400 MW with an investment of US $ 2.40 billion (Rs. 12,000 crore).
Peer Group Comparison
Name of the
company
CMP
(As on 13
Jan,
2010)
Market
Cap.
(Rs. Mn.)
EPS
(Rs.)
P/E
(x)
P/BV
(x) Dividend(%)
Jindal Steel &
Power Ltd 694.90 646812.9 13.85 50.09
11.92 550
SAIL 237.10 979937.5 12.82 18.51 3.50 26
Tata Steel 625.65 555085.5 40.78 15.38 2.28 160
JSW Steel 1116.50 208839.9 38.13 29.28 2.74 10
Key Concerns
• Any significant delay in the implementation of the capacity addition
programme will pose a threat to our rating.
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• Price control on short-term power sale may impact the higher realisation
of JPL.
Financials
12 Months Ended Profit & Loss Account (Standalone)
Particulars FY 08 A FY 09 A FY 10 E FY11 E
(Rs.Mn) 12m 12m 12m 12m
Net Sales 54,107.50 76,531.90 65434.77 75249.99
Other Income 491.2 1,462.40 1096.80 1206.48
Total Income 54,598.70 77,994.30 66531.57 76456.47
Expenditure -32,793.60 -51,605.20 -42794.3 -49213.49
Operating Profit 21,805.10 26,389.10 23737.23 27242.98
Interest -2,264.90 -2,040.00 -1938.00 -2034.90
Gross Profit 19,540.20 24,349.10 21799.23 25208.08
Depreciation -4,515.10 -4,330.30 -5066.5 -5573.1
Profit before Tax 15,025.10 20,018.80 16732.78 19634.98
Tax -2,655.50 -4,654.00 -4015.9 -4712.4
Net Profit 12,369.60 15,364.80 12716.91 14922.59
Equity Capital 154 154.65 930.80 930.80
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Reserves 37,093.70 52,856.30 65,573.21 80,495.80
EPS 80.32 99.35 13.66 16.03
*Equity Capital has been changed
Quarterly Ended Profit & Loss Account (Standalone)
Particulars Mar 09 A June 09 A Sep 09 A Dec 09 E
(Rs.Mn) 3m 3m 3m 3m
Net Sales 17,606.90 15,761.30 15,982.40 16302.05
Other Income 1,134.60 165.3 204.6 225.06
Total Income 18,741.50 15,926.60 16,187.00 16527.11
Expenditure -13,300.10 -10,174.20 -10,468.90 -10677.84
Operating Profit 5,441.40 5,752.40 5,718.10 5849.27
Interest -259 -327.6 -545 -572.25
Gross Profit 5,182.40 5,424.80 5,173.10 5277.02
Depreciation -1,087.10 -1,228.90 -1,270.30 -1321.11
Profit before Tax 4,095.30 4,195.90 3,902.80 3955.90
Tax -505.1 -1,195.30 -852.7 -870.30
Net Profit 3,590.20 3,000.60 3,050.10 3085.61
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Equity Capital 154.65 154.7 930.8 930.80
EPS 23.22 19.40 3.28 3.32
*Equity Capital has been changed
*A=Actual, E=Estimated
Charts
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Comparative Graph
JSPL BSE SENSEX
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Outlook and Conclusion
• At the current market price of Rs.694.90, the stock trades at a P/E of 50.86x
and 43.34x for FY10E and FY11E respectively.
• On the basis of EV/EBDITA, the stock trades at 29.97x and 27.30x for FY10E
and FY11E respectively.
• Price to Book Value of the stock is expected to be at 9.73 and 7.94
respectively for FY10E and FY11E.
• The Net sales of the company are expected to grow at a CAGR of 12% over
2008 to 2011E.
• Equity Capital has been changed.
• JPL will be setting up Subansiri Middle 1600 MW hydro electric power project
in
Arunachal Pradesh on river Kamla, a Tributary of river Subansiri pursuant to
Memorandum of Agreement entered into by and between Government of
Arunachal Pradesh.
• Expansion Projects in Orissa
A 12.5 million ton integrated steel plant and 2600 MW Captive Power Plant in
phases, with a total investment of over US $ 8.00 billion (Rs. 40,000 crore). The
first phase of 3 million ton is expected to be commissioned by 2011.
• We recommend ‘HOLD’ in this particular scrip with a target price of Rs.765.00.
Industry Overview
The Indian steel industry entered into a new development stage from 2005–06,
resulting in India becoming the 5th largest producer of steel globally. Producing
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about 55 million tonnes (MT) of steel a year, today India accounts for a little over
7 per cent of the world's total production.
India is the only country across the world to post a positive overall growth in
crude steel production at 1.01 per cent for the January-March period of 2009.
The recovery in steel production has been aided by the improved sales
performance of steel companies. The steel sector grew by 5.3 per cent in May
2009.
Significantly, state-owned steel maker, Steel Authority of India (SAIL), which
reported a net profit of US$ 571 million in January-June 2009, has become the
most profitable steel company globally, beating steel majors such as
ArcelorMittal, Posco, Bao Steel and Nippon in the half yearly profits.
Production
Steel production reached 28.49 million tonne (MT) in April-September 2009.
Further, India, which recorded production of 22.14 MT of steel during April-
August 2009, is likely to emerge as the world's third largest steel producer in the
current year, according to Goutam Kumar Basak, Executive Secretary, Joint
Plant Committee (JPC).
The National Steel Policy has a target for taking steel production up to 110 MT by
2019–20. Nonetheless, with the current rate of ongoing greenfield and
brownfield projects, the Ministry of Steel has projected India's steel capacity is
expected to touch 124.06 MT by 2011–12. In fact, based on the status of
memoranda of understanding (MoUs) signed by the private producers with the
various state governments, India's steel capacity is likely to be 293 MT by 2020.
Consumption
India accounts for around 5 per cent of the global steel consumption. Almost 70
per cent of the total steel used is for kitchenware. However, its use in railway
coaches, wagons, airports, hotels and retail stores is growing immensely.
India's steel consumption rose by 5.7 per cent to 26.49 MT in the first six months of
the current fiscal over the same period a year ago on account of improved
demand from sectors like automobile and consumer durables.
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A Credit Suisse Group study states that India's steel consumption will continue to
grow by 16 per cent annually till 2012, fuelled by demand for construction
projects worth US$ 1 trillion.
The scope for raising the total consumption of steel is huge, given that per
capita steel consumption is only 35 kg – compared to 150 kg across the world
and 250 kg in China.
Steel players like JSW Steel and Essar Steel are increasing their focus on opening
up more retail outlets pan India with growth in domestic demand. JSW Steel
currently has 50 such steel retail outlets called JSW Shoppe and is targetting to
increase it to 200 by March 2010. They expect at least 10-15 per cent of their
total production to be sold by their retail outlets.
Essar Steel which currently has over 300 retail outlets across the country, plans to
set up 5,000 outlets of various formats soon. It expects to sell 3MT of steel through
the retail route in two years.
Exports
Out of India's annual iron ore production of more than 200 MT, about 50 per
cent is exported.
Iron ore exports increased 17 per cent to 12.6 MT in February 2009 from 10.8 MT in
the same month a year ago, owing to a moderate revival in demand from
Chinese steel producers, as per the latest data compiled by a group of top
Indian mining firms.
Earlier, according to a study, with the rise in demand for steel in China, India's
iron ore exports went up by 38 per cent to reach 13.6 MT in December 2008
against 9.8 MT in December 2007. Around 50-60 per cent of India’s iron ore is
exported to China.
Power
As the Indian economy continues to surge ahead, its power sector has been
expanding concurrently to support the growth rate. The demand for power is
growing exponentially and the scope for the growth of this sector is immense.
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India's total installed capacity of electricity generation has expanded from
105,045.96 MW at the end of 2001–02 to 155,859.23 MW at the end of November
2009. In fact, India ranks sixth globally in terms of total electricity generation.
Source-wise, at the end of November 2009, thermal power plants accounted for
an overwhelming 63.92 per cent of the total installed capacity, producing
99628.48 MW. Hydel power plants come next with an installed capacity of
36,885.40 MW, accounting for 23.67 per cent of the total installed electricity
generation capacity.
Besides thermal and hydel power, renewable energy sources contribute 9.77 per
cent to the total power generation in the country producing 15,225.35 MW.
Nuclear energy makes up the balance 2.64 per cent, contributing 41,200 MW.
Growth Potential
According to a report by KPMG and CII, released in December 2007, India's
energy sector will require an investment of around US$ 120 billion- US$ 150 billion
over the next five years.
The government has revised its target of power capacity addition to 92,700 MW
in the 11th Five Year Plan (2007-12), from the earlier estimate of 78,577 MW (as of
June 2007) to sustain the growth momentum of the economy.
Further, according to Planning Commission estimates, renewable energy (RE)
projects worth US$ 16.50 billion, for the generation of 15,000 MW power, would
come up in the 11th Plan.
Moreover, the government has earmarked a total capital subsidy of US$ 6.88
billion for providing electricity connections and for the distribution of
infrastructure to rural households.
The Indian Power Sector has come a long way from one small unit in 1880s to
1,362 MW in 1947 to 147,965 MW in 2008–09 and 151,073 MW in July 2009. Further,
the per capita consumption of power in India has gone up significantly since the
1990s. The targeted per capita consumption at the end of the current Five-Year
Plan (2011–12) is 1,000 kWh.
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Thermal power accounts for much of the power produced in India, followed by
hydro. India has a renewable energy installed capacity of about 13,242 MW (as
on July 31, 2009), which constitutes 9 per cent of total installed capacity. The
country has the fourth-largest number of wind energy installations in the world.
_______________________________________________ _____
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transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but we do not represent that it is accurate or complete and it
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affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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