JSPL: Ordeal continues

After some positives in steel business and expected sale of power plants, the news of its chairman being charged for criminal conspiracy is a big sentimental negative

After a series of positives that accrued for Jindal Steel and Power (JSPL), the news about the company’s chairman being charged for criminal conspiracy in coal scam has hurt sentiments. The JSPL stock, which after hitting an intra-day low of Rs 48.20 in mid-February (levels seen in September 2006) had risen to near Rs 75 levels, lost over seven per cent on Friday to close at Rs 69.05.

A special CBI court charged JSPL with criminal conspiracy in the case of inappropriate allocation of Amarkonda coal block in Jharkhand. Though the charges are yet to be proved and will most likely be contested by the company and its chairman, the news has hurt street sentiments. Analysts say, its overhang can keep the stock under pressure going ahead.  

The development, however, was being anticipated by many experts. The court was to decide whether evidence gathered by CBI had enough merit to allow a charge sheet to be filed against company’s officials. Research house Macquarie had earlier said that at best there is only some minor circumstantial evidence of corruption, the court can view it as enough ground and there is a possibility that Naveen Jindal, chairman and promoter of the company, could be named, which the market would take negatively.This would be one long court battle and could last several years, Macquarie had said. Not surprisingly, the stock took a beating following the news.

The development also comes after last month’s news of the special court awarding four year jail term to chairman and director of Jharkhand Ispat Private Limited (JIPL) along with a fine of Rs 5 lakh on each, for deceiving and defrauding the government to bag a coal block in Jharkhand.

On the business front, JSPL, in past few months, had been seeing some resurrection of fortunes as domestic steel prices started gaining momentum. With the sharp Rs 5,000 a tonne rise in steel prices from their January lows, analysts are expecting the company’s steel business EBITDA margin to improve to Rs 9,000 a tonne. There had also been a favourable verdict for JSPL as Orissa High Court allowed movement of iron-ore stockpiles from mining facilities to its nearby pellet plant.

This is likely to add about Rs 1,300 crore to company’s operating profit over FY17 and FY18, as per Macquarie estimates. If the global iron ore price rise continues, this could drive more benefits as JSPL has re-started exports. Further, media reports suggest that JSPL’s 1,000 Mega Watt power plant is being sold. If it materialises, the sale can lead to reduction in company’s debts.

However, with JSPL’s promoter now getting charged of criminal conspiracy, the company’s roller coaster ride with fortunes continues.