Prabhudas Lilladher has given Buy recommendation for Jindal Steel and Power with a target price of Rs. 555 in its research report issued on Dec 09, 2021
Prabhudas Lilladher’s research report on Jindal Steel and Power
Domestic steel stocks have been under pressure due to 2x increase in coking coal prices, negative sentiments on Chinese demand and 50% fall in iron ore prices. Strong steel prices and lower costs benefitted the Ferrous sector over last 18-months with record earnings and near 40% fall in debt levels. However, JSP was able to make the most with ramp-up of its Angul plant after a long wait as utilisation rate increased from average 70% to 90%+. Production till FY20 was impacted due to coal quality issues (for coal gasifier based DRI capacity) and weak financial condition resulting in delay of Blast furnace (BF) integrated commissioning. Led by high operating leverage and structurally better spreads, we expect JSP’s sustainable EBITDA/t’s trajectory to expand by 20% to Rs12,000 (Q2FY22/FY22e: Rs21,200/Rs20,000) in FY23e over FY16-FY20 average.
Given the pure play on domestic long steel, strong B/S (Net debt/EBITDA<0.5x) and attractive valuations (EV/EBITDA<4x), we reiterate BUY rating with TP of Rs 555 based on EV/EBITDA of 6.0x FY23e.