JSPL mulls buyback as its shares become attractive

Since company seems to be more confident at current prices, news of buyback has also gathered some ground

Despite subdued performance in the quarter ended June 2013, Analysts remains upbeat about Jindal Steel & Power (JSPL) as most of them believe that valuations have turned attractive.

"JSP has already corrected sharply on various policy concerns and is trading at extremely attractive valuations of 5.8 times estimated FY14 earnings and at just 0.8 time book value with 17% ROE. We would utilise the current weakness to buy, said Rakesh Arora who tracks the company at Macquarie Capital Securities

The company has in the past seen severe downgrades and thus correction in the share prices on account of controversies over the captive coal block, poor performance of international business, delays in expansions and overall decline in realisation for its steel and power business. Its share prices are now trading around 199 levels, which far less than its FY14 estimated book value of about RS 260-270 per share and replacement cost of Rs 260 a share.

Since the company seems to be more confident at the current prices the news of buyback has also gathered some ground. JSPL has formed a committee to evaluate and the clearance for thebuyback. 

"Buy-back makes sense in our view. JSPL’s stock has corrected sharply due to controversies related to captive coal, iron ore, concerns on new SBD and a decline in steel and power realizations. The stock is now below FY13 book value of Rs 226 and replacement cost of assets of Rs 258 a share," Said Atul Tiwari of Citi Research in a note on the company

Analysts believes that at current levels thebuyback will be earnings accretive and thus will help the company to achieve both stability in the share prices and re-rating. At current market price of Rs 199.8 stock is offering 18% earnings yield compared to 14.6% RoE earned by its business. This itself indicates thatbuyback could be an earning accretive exercise.