Buy Jindal Steel & Power, target price Rs 150: Motilal Oswal

Buy Jindal Steel & Power, target price Rs 150: Motilal Oswal

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Motilal Oswal has given a buy rating to Jindal Steel & Power with a target price of Rs 150 on cost tailwinds and volume growth in FY22E.

Jindal Steel & Power’s 4QFY20 consolidated EBITDA was Rs 22.2 billion, against the brokerage estimate of Rs 19.6 billion, up 22 per cent quarter on quarter (20 per cent year on year) due to higher steel prices in Indian and Oman operations.

The beat on estimates was led primarily by higher than -expected margins in Oman operations and lower raw material costs in standalone operations due to usage of Sarda mines’ inventory. The adjusted PAT stood at Rs 2.2 billion (v/s estimated adjusted loss of Rs 1.5 billion). During FY20, EBITDA declined 7 per cent year on year to Rs 78.6 billion while the loss stood at Rs 2.8 billion (v/s FY19 Adj PAT of Rs 3.2 billion in FY19).

Investment Rationale

Steel sales volumes declined 17 per cent quarter on quarter to 1.33 mt (-8 per cent year on year) due to the Covid-19 impact. Implied steel realization improved 9 per cent quarter on quarter to Rs 42,514/t on strong domestic steel prices. EBITDA/t increased 40 per centquarter on quarter (18 per cent year on year) to Rs 11,746/t against the estimated Rs 10,963/t), primarily due to increased realisation and usage of Sarda mine inventory during March’20, which was offset by lower operating leverage. As a result, EBITDA of standalone operations increased 16 per cent quarter on quarter to Rs 15.6 billion, (+8 per cent year on year), above estimated Rs 14.6 billion.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 8810.68 crore, down -5.26 per cent from last quarter sales of Rs 9299.78 crore and down -13.27 per cent from last year’s same quarter sales of Rs 10158.95 crore. The company reported net profit after tax of Rs 305.62 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 60.48 per cent stake in the company as of March 31, 2020, while FIIs held 13.40 per cent, DIIs 12.35 per cent and public and others 13.77 per cent.

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