Jindal Steel & Power stock already factoring in improving prospects

Given a higher conversion of semis into value-added products, JSPL expects realisation and profitability to improve

Jindal Steel & Power’s (JSPL) Q4FY24 results were in line with consensus. The reported revenue of Rs 13,500 crore (down 1.5 per cent year-on-year Y-o-Y and up 15 per cent quarter-on-quarter Q-o-Q) in Q4FY24 beat estimates. 

The Average Selling Price of steel stood at Rs 67,099 per tonne (flat Y-o-Y and up 4 per cent Q-o-Q), which was better than expectations.

The Ebitda stood at Rs 2,400 crore (up 12 per cent Y-o-Y, down 14 per cent Q-o-Q), which was lower than estimates, due to higher costs. The Ebitda per tonne stood at Rs 12,162 (up 12 per cent Y-o-Y, down 14 per cent Q-o-Q), which was also below estimates.

The coal costs rose by $10-20 per tonne Q-o-Q. The adjusted profit after tax (APAT) stood at Rs 900 crore (up 52 per cent Y-o-Y but down 51 per cent Q-o-Q). The production volume rose 2 per cent Y-o-Y and 6 per cent Q-o-Q to 2.05 million tonnes (MT), while the sales volume was at 2.01 MT (down 1 per cent Y-o-Y, up 11 per cent Q-o-Q). Exports were flat Y-o-Y at 11 per cent of the total revenue in Q4FY24.

For FY24, revenue declined 5 per cent Y-o-Y to Rs 50,000 crore, due to flat volumes and weak realisations. The Ebitda and APAT increased by 3 per cent and 62 per cent Y-o-Y to Rs 10,200 crore and Rs 5,900 crore respectively, due to raw material cost moderation and an improved product mix in FY24. An impairment of Rs 360 crore was booked at the Australian subsidiary. 

The sales volume was flat Y-o-Y at 7.7 MT. The net debt as of March 2024 stood at Rs 11,200 crore versus Rs 9,100 crore in Q3FY24, for an estimated net debt-to-Ebitda ratio of 1.1x as of March 2024 versus 0.92x in Q3FY24.

On the coal side, during Q4FY24, JSPL produced 1 MT from Gare Palma IV/6 coal mine and it targets a 3.5 MT production in the near term. In the Utkal C coal block, JSPL produced about 0.9 MT and the Utkal B1 and B2 mines are under an advanced stage of clearance and expected to start production in FY25. JSPL will also increase its total finished steel capacity from 7.25 MT to 13.75 MT by FY26 at a total capex of Rs 31,000 crore.

The management says all the expansions are on schedule. JSPL expects to incur the remaining Rs 15,000 crore capex (excluding maintenance capex) in the next three years.

The bulk of capex is to come from internal accruals which means that the balance sheet will not be under too much pressure.

The management commentary indicated that coal cost per tonne increased by $10-20 in Q4FY24 versus $281 in Q3FY24 and $249 in Q2FY24. The coking coal cost is expected to moderate by $30-40 per tonne in Q1FY25. The management expects better captive volumes in FY25 versus. FY24.

JSPL hiked prices by Rs 1,000 per tonne in April 2024. Given a higher conversion of semis into value-added products, JSPL expects the realisations and profitability to improve. There was an increase in inventory, with both higher coal and finished goods inventory during Q4.

The outlook seems good. The price hikes in April 2024 and lower coal costs could drive margin expansions. The capex focus includes more value-added products, which would also improve margins. 

Analysts seem generally positive and there have been mild earnings upgrades for FY25. The stock seems to be moderately valued. According to Bloomberg, 13 out of 20 analysts polled post Q4 results (announced on Monday evening) are bullish on the stock; five have 'sell'/'reduce'/'underweight' ratings and two have 'hold'. 

Their average one-year target price for JSPL is Rs 978, which is at par with the current price post 4.2 per cent surge on Tuesday.