CMP 261.30

Target Price 287.00

ISIN: INE749A01030

JANUARY 11th

2014

JINDAL STEEL & POWER LIMITED Result Update: Q2 FY14

HOLDHOLDHOLDHOLD

Index Details

Stock Data

Sector Iron & Steel

BSE Code 532286

Face Value 1.00

52wk. High / Low (Rs.) 454.15/181.55

Volume (2wk. Avg.) 291000

Market Cap (Rs. in mn.) 244263.24

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 198067.80 204009.83 214210.33

EBITDA 68050.70 61069.63 68398.45

Net Profit 29101.10 23098.19 25644.69

EPS 31.13 24.71 27.43

P/E 8.39 10.57 9.52

Shareholding Pattern (%)

1 Year Comparative Graph

JINDAL STEEL & POWER LTD S&P BSE SENSEX

SYNOPSIS

Jindal Steel and Power Ltd (JSPL) is one of India's major steel producers with a significant presence in sectors Mining, Power Generation and Infrastructure.

The consolidated turnover was up by 7% to Rs. 49,838.40 million against Rs. 46,552.40 million in previous year period.

Net Profit is after tax but before minority interest and share of profit/(loss) of associates for the quarter is Rs. 4549.40 million (Rs. 9034.50 million in Q2 FY13).

The steel business in volume and value terms grew by 11% and 7% respectively compared to the previous quarter (Q1 FY14).

JSPL achieved a spectacular growth in its export volumes which in volume and value terms grew by 32% and 104% for the same period (Q2 FY13) last year.

The Company has received Rail order from DFCC for the prestigious Delhi – Kolkata corridor and export order from Ferrotech Alloys, UK.

JSPL’s retail segment has been very successful and the sale during Q2 FY14 grew over 5 times compared to Q2 FY13 and 16% over Q1 FY14.

2 MTPA Steel Plant being set up in Oman is also progressing well and will be commissioned by January 31st, 2014.

Jindal Power Ltd., a subsidiary of JSPL sales grew by 17.7% while PBT and PAT increased by 16.9% and 15.7% respectively in Q2 this year compared to Q2 FY13.

Net Sales of the company is expected to grow at a CAGR of 6% over 2012 to 2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Jindal Steel & Power Ltd 261.30 244263.24 31.13 8.39 1.15 160.00

SAIL Ltd 68.60 283354.00 6.20 11.06 0.69 20.00

Tata Steel Ltd 384.30 373238.00 54.27 7.08 0.68 80.00

Sesa Sterlite Ltd 196.40 582262.10 1.31 149.92 4.40 10.00

Recommendation & Analysis - ‘HOLD’

JSPL, notwithstanding a continued slowdown of economy, turbulence in the Forex markets, all time low steel

prices and a Monsoon dominated period, increased the steel sales in volume by 16% and in value terms by 2%

compared to Q2 FY13 on a standalone basis. The steel business in volume and value terms grew by 11% and 7%

respectively compared to the previous quarter (Q1 FY14). JSPL achieved a spectacular growth in its export

volumes which in volume and value terms grew by 32% and 104% for the same period (Q2 FY13) last year.

While EBITDA and PBT for Q2 FY14 grew by 15.8% and 10.4% over Q1 FY14, there was a decline of the same

parameters by 22% and 58% for the same period (Q2 FY13) on a standalone basis. The drop in earnings were

caused largely due to drop of 12-15% in the price levels and interest & depreciation burden of investments made

in Angul Phase – 1 Steel plant and upgradation of Raigarh Steel plant. JSPL’s foray into the retail segment has

been very successful and the sale during Q2 FY14 grew over 5 times compared to Q2 FY13 and 16% over Q1 of

the current year.

The consolidated turnover was up by 7% to Rs. 49,838.40 million against Rs. 46,552.40 million in previous year

period. Net Profit is after tax but before minority interest and share of profit/ (loss) of associates for the quarter

is Rs. 4549.40 million (Rs. 9034.5 million in Q2 FY13).

The company successfully completed the SMS plant in Angul and is in the process of stabilizing production.

Jindal Power Ltd. also synchronized the first 600 MW Power unit of Tamnar Phase - 2 power plants. The

installation of remaining units of Angul Phase - 1 is on track and all of them are expected to be commissioned by

the end of next quarter. 2 MTPA Steel Plant being set up in Oman is also progressing well and will be

commissioned by January 2014. At least, 3 units of JPL’s Tamnar Phase - 2 will be commissioned by March 31,

2014. The new 4 MTPA Pellet plant will go into production by January 31, 2014.

On the Global Operations front, Mozambique mining operations gathered further momentum and is now all set to

achieve its rated capacity of 3 MTPA by March 31, 2014. The Company has a positive and optimistic outlook for

Q3 and Q4. Over FY2012-15E, we expect the company to post a CAGR of 6% in its revenue. Hence, we

recommend ‘HOLD’ for ‘Jindal Steel and Power Ltd’ with a target price of Rs. 287.00.

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results updates- Q2 FY14,

Jindal Steel and Power Limited (JSPL) is one of

India's major steel producers with a significant

presence in sectors like Mining, Power Generation

and Infrastructure in the world and the largest in

India, reported its financial results for the quarter

ended 30th Sep, 2013.

Months Sep-13 Sep-12 % Change

Net Sales 49838.40 46552.40 7.06

Net Profit 4520.70 8972.80 (49.62)

EPS 4.84 9.60 (49.62)

EBITDA 14417.10 17750.00 (18.78)

The company’s net profit declines to Rs. 4520.70 million against Rs. 8972.80 million in the corresponding

quarter ending of previous year, a decrease of 49.62%. Revenue for the quarter rose by 7.06% to Rs. 49838.40

million from Rs. 46552.40 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 4.84 a share during the quarter, registering 49.62% decrease over previous year period.

Profit before interest, depreciation and tax is Rs. 14417.10 millions as against Rs. 17750.00 millions in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Value in Rs. Million

Q2 FY14 Q2 FY13

Stores & Spares Parts Consumed

4548.30 4435.70

Other Expenditure 8510.70 7022.60

Power & Fuel 4693.30 3547.70

Cost of Material Consumed 13027.10 14869.50

Employee Benefit Expenses 1952.00 1613.10

Depreciation & Amortization Expense

4338.40 3690.20

Purchase of Stock in Trade 278.80 17.20

Segment Revenue

Latest Updates

• The Company has received Rail order from DFCC for the prestigious Delhi – Kolkata corridor and export

order from Ferrotech Alloys, UK.

• JSPL launched its new Brand “Jindal Panther” on a companywide basis on August 5 and has appointed 34

distributors and 650 dealers across the country as on September 30th, 2013.

• Jindal Power Ltd., a subsidiary of JSPL achieved PLF 95.1% during Q2 compared to 85 % for the same period

last year. Company’s Sales grew by 17.7% while PBT and PAT increased by 16.9% and 15.7% respectively in

Q2 this year compared to Q2 FY13. While it’s 4x250 MW continues to be the most efficient unit of the

country, first 600 MW units was commissioned in a record time of 33 months. The company signed FSA for

the first two units during Q2 FY14.

COMPANY PROFILE

Jindal Steel and Power Limited (JSPL) is one of India’s major steel producers with a significant presence in

sectors like Steel, Mining, Power Generation and Infrastructure. With an annual turnover of over US$ 3.6 billion,

JSPL is a part of the over US$ 18 billion diversified O. P. Jindal Group. In the recent past, JSPL has expanded its

steel, power and mining businesses to various parts of the world particularly in Asia, Africa and Australia. The

company has committed investments exceeding US$ 30 billion in the future and has several business initiatives

running simultaneously across continents. The company produces economical and efficient steel and power

through backward and forward integration.

The company is producing from the widest flat products to a whole range of long products. The company also has

the distinction of producing the world's longest 121 metre rails and large size parallel flange beams for the first

time in India. JSPL operates the largest coal - based sponge iron plant in the world and has an installed capacity

of 3 MTPA of steel at Raigarh in Chhattisgarh. With a 0.6 MTPA wire rod mill and a one million tone capacity bar

mill at Patratu, Jharkhand, a medium and light structural mill at Raigarh, Chhattisgarh and a plate mill to produce

upto 5.00 metre wide plates at Angul, Odisha. The company aims for a fast-paced growth so as to contribute

substantially to India's long term prosperity.

The company has scaled new heights with the combined force of innovation, adaptation of new technologies and

the collective skills of its 15,000 strong, committed workforce. And the recognition it has received only further

lends credence to this. JSPL has recently been rated as the second highest value creator in the world by Boston

Consulting Group; 11th fastest growing company in India by Business World; included in one of the Fab 50

Companies by Forbes Asia, 2009 and 2010; one of the Best Blue Chip companies as well as the Highest Wealth

Creator by the Dalal Street Journal. It has also been ranked fourth as per Total Income in the Iron and Steel sector

by Dun & Bradstreet.

Products

• Rails

• Parallel Flange Beams & Columns

• Plates & Coils

• Angels & Channels

• TMT Re-bars

• Wire Rods

• Fabricated Sections

• Semi-Finished Products

• Power

• Ferro Chrome

• Silico Manganese

• Sponge Iron

Business Areas

Jindal Steel and Power Limited started as a steel manufacturing company, enhanced the company position as a

major steel producer and diversified into various other sectors such as:

• Mining

• Power Generation & Trading

• Petroleum

• Cement and Infrastructure.

Plants Locations

• Raigarh Plant (Chhattisgarh)

• Jindal Industrial Park (Chhattisgarh)

• Raipur Division (Chhattisgarh)

• Tamnar (Odisha)

• Angul (Odisha)

• Barbil (Odisha)

• Tensa - (Jharkhand)

• Patratu (Jharkhand)

Global Presence

• South America

• Africa

• South Africa

• Mozambique

• Madagascar

• Zambia

• Tanzania

• Oman (Middle East)

• Australia

FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31st, 2012 -2015E

JINDAL STEEL & POWER LTD. FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs. mn)

Shareholder's Funds

Share Capital 934.80 934.80 934.80 934.80

Reserves and Surplus 180176.20 211587.80 234685.99 260330.68

1. Sub Total - Net worth 181111.00 212522.60 235620.79 261265.48

2. Minority interest 3071.00 5572.70 6352.88 6734.05

Non Current Liabilities

Long term Borrowings 111796.30 154016.40 194830.75 214313.82

Deferred Tax Liabilities 11919.50 13365.40 13900.02 14317.02

Other Long term liabilities 1420.60 5617.90 6460.59 7171.25

Long term Provisions 335.40 327.10 372.89 406.45

3. Sub Total - Non Current Liabilities 125471.80 173326.80 215564.24 236208.54

Current Liabilities

Short Term Borrowings 45693.10 82471.80 97316.72 105102.06

Trade Payables 12513.60 13982.00 19015.52 21867.85

Other Current Liabilities 41101.60 34012.50 40815.00 46120.95

Short Term Provisions 41113.30 48838.00 51768.28 54356.69

4. Sub Total - Current Liabilities 140421.60 179304.30 208915.52 227447.55

Total Liabilities (1+2+3+4) 450075.40 570726.40 666453.44 731655.63

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 164626.30 192545.50 228837.51 251721.26

Intangible assets 313.90 201.00 221.10 234.37

Capital Work in Progress 134720.50 180828.40 220610.65 247083.93

Intangible assets under development 1799.00 11474.50 13998.89 15958.73

a) Sub Total - Fixed Assets 301459.70 385049.40 449669.26 499039.55

b) Non-current investments 3776.20 8088.60 9382.78 10508.71

c) Goodwill on consolidation 917.60 1542.50 2952.00 3247.20

d) Long Term loans and advances 21809.40 24214.30 32205.02 36713.72

e) Other non-current assets 142.40 19.50 130.50 143.55

1. Sub Total - Non Current Assets 328105.30 418914.30 494339.55 549652.73

Current Assets

Inventories 35795.3 45241.70 46598.95 48462.91

Trade receivables 13067.50 19541.30 20713.78 22370.88

Cash and Bank Balances 1492.10 2001.30 6550.50 7533.08

Short-terms loans & advances 69272.10 80787.90 93713.96 98736.40

Other current assets 2343.10 4239.90 4536.69 4899.63

2. Sub Total - Current Assets 121970.10 151812.10 172113.89 182002.89

Total Assets (1+2) 450075.40 570726.40 666453.44 731655.63

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 182086.00 198067.80 204009.83 214210.33

Other Income 1419.30 1364.20 886.73 922.20

Total Income 183505.30 199432.00 204896.56 215132.52

Expenditure -112213.00 -131381.30 -143826.93 -146734.07

Operating Profit 71292.30 68050.70 61069.63 68398.45

Interest -5059.50 -8582.80 -13217.51 -15861.01

Gross profit 66232.80 59467.90 47852.12 52537.44

Depreciation -13864.70 -15392.20 -17239.26 -18790.80

Exceptional Items -482.30 -5741.20 0.00 0.00

Profit Before Tax 51885.80 38334.50 30612.86 33746.64

Tax -11863.40 -9218.30 -7408.31 -7997.95

Profit After Tax 40022.40 29116.20 23204.54 25748.69

Minority Interest -574.00 -417.10 -383.73 -395.24

Share of Profit & Loss of Asso 200.30 402.00 277.38 291.25

Net Profit 39648.70 29101.10 23098.19 25644.69

Equity capital 934.80 934.80 934.80 934.80

Reserves 180176.20 211587.80 234685.99 260330.68

Face value 1.00 1.00 1.00 1.00

EPS 42.41 31.13 24.71 27.43

Quarterly Profit & Loss Statement for the period of 31st

Mar, 2013 to 31st Dec, 2013E

Value(Rs.in.mn) 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13E

Description 3m 3m 3m 3m

Net sales 56484.40 45402.70 49838.40 50835.17

Other income 290.80 532.80 -151.30 123.31

Total Income 56775.20 45935.50 49687.10 50958.48

Expenditure -40591.20 -32351.40 -35270.00 -36092.97

Operating profit 16184.00 13584.10 14417.10 14865.51

Interest -2387.30 -2675.30 -3804.70 -4261.26

Gross profit 13796.70 10908.80 10612.40 10604.24

Depreciation -4383.00 -4216.00 -4338.40 -4468.55

Profit Before Tax 9413.70 6692.80 6274.00 6135.69

Tax -1886.20 -1680.20 -1724.60 -1484.84

Profit After Tax 7527.50 5012.60 4549.40 4650.86

Minority Interest -83.20 -136.00 -91.60 -86.10

Share of Profit & Loss of Asso 158.00 66.20 62.90 69.19

Net Profit 7602.30 4942.80 4520.70 4633.94

Equity capital 934.80 934.80 934.80 934.80

Face value 1.00 1.00 1.00 1.00

EPS 8.13 5.29 4.84 4.96

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 42.41 31.13 24.71 27.43

EBITDA Margin (%) 39.15% 34.36% 29.93% 31.93%

PBT Margin (%) 28.50% 19.35% 15.01% 15.75%

PAT Margin (%) 21.98% 14.70% 11.37% 12.02%

P/E Ratio (x) 6.16 8.39 10.57 9.52

ROE (%) 22.10% 13.70% 9.85% 9.86%

ROCE (%) 25.15% 18.58% 14.84% 15.01%

Debt Equity Ratio 0.87 1.11 1.24 1.22

EV/EBITDA (x) 5.61 7.04 8.68 8.13

Book Value (Rs.) 193.74 227.35 252.05 279.49

P/BV 1.35 1.15 1.04 0.93

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.261.30, the stock P/E ratio is at 10.57 x FY14E and 9.52 x FY15E

respectively.

� Earnings per share (EPS) of the company for the earnings for FY14E and FY15E are seen at Rs.24.71 and

Rs.27.43 respectively.

� Net Sales of the company is expected to grow at a CAGR of 6% over 2012 to 2015E respectively.

� On the basis of EV/EBITDA, the stock trades at 8.68 x for FY14E and 8.13 x for FY15E.

� Price to Book Value of the stock is expected to be at 1.04 and 0.93 x respectively for FY14E and FY15E.

� We recommend ‘HOLD’ in this particular scrip with a target price of Rs.287.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India has become the world’s fourth-largest producer of crude steel. The country is slated to become the second-

largest steel producer by 2015 as large public and private sector players strengthen steel production capacity in

view of the rising demand.

The total market value of the steel sector in India stood at US$ 57.8 billion in 2011 and is expected to touch US$

95.3 billion by 2016. Total crude and finished steel production grew at a compound annual growth rate (CAGR)

of 6.6 per cent and 4.2 per cent over FY08-11 to reach 69.6 million tonnes (MT) and 66 MT respectively.

Steel consumption is expected to grow at an average rate of 6.8 per cent to reach 104 MT by 2017 driven by

rising infrastructure development and growing demand for automotives. The infrastructure sector is India’s

largest steel consumer, accounting for 63 per cent of total consumption in FY11. Attracted by the growth

potential of the Indian steel industry, several global steel players have been planning to enter the market. The

Government of India (GOI) has allowed 100 per cent foreign direct investment (FDI) in the sector through

automatic route in order to attract foreign investments.

Market Size

Latest figures by World Steel Association (WSA) has revealed that India's steel production increased by 3 per

cent to 59.62 million tonne (MT) in the first nine months of 2013, as against 57.90 MT in the corresponding

period last year. Moreover, the data showed that India's rate of production growth was the second-best following

China among the major global producers.

The country’s steel output grew to 6.54 MT in September 2013 from 6.24 MT during the same month in 2012.

Investments

• JSW Steel has acquired Heidelberg Cement India's 0.6 million tonne per annum (MTPA)-cement grinding

facility in Raigad, Maharashtra for an undisclosed sum. The two companies have inked the Business

Transfer Agreements recently.

• Leitwind Shriram Manufacturing has received a Rs 346 crore (US$ 56.18 million)-order for the supply

and installation of machines from Neyveli Lignite Corporation for a 51 megawatt (MW) wind energy

plant at Kaluneerkulam near Tirunelveli in Tamil Nadu.

• Meanwhile, Jindal Steel and Power Ltd (JSPL) has secured five exploration licences for iron ore mining in

African countries including Namibia, Gabon, Sierra Leone, Mauritania and one in South Africa. The

company has already commenced assessing and checking the exact number of reserves in the region. It is

also mulling over steel production and mining projects in Brazil, Indonesia and Mongolia. It has recently

commissioned a steel melting shop and its allied unit of the 6 MTPA integrated steel plant at Angul in

Odisha.

JSPL has a steel capacity of about 5.5 MTPA in India and 2 MTPA in Oman, outside India. It intends to

increase its total steel capacity to 11.5 MTPA by 2015-16. The iron ore will also be used for its steel plant

in Oman. It mainly exports steel in West Asia, Africa, Southeast Asia, Taiwan and the Arabian Peninsula.

The exports contribute 20-25 per cent of total steel products.

• Tata Steel is all geared – up to launch 30 new products in Europe in FY14. The company had launched 17

steel products in the European market in FY13. Also, Tata Steel has commissioned a 3 MT unit in

Jamshedpur while it has spent Rs 10,000 crore so far for the first phase of another 3 MT plant in

Kalinganagar, Odisha. The plant is scheduled to be commissioned in the second half of FY15.

Road Ahead

WSA has released its estimates which state that Steel demand in India is projected to grow 3.4 per cent in 2013,

higher than the 2.6 per cent growth rate recorded in 2012. Moreover, in 2014, the demand is poised to grow at

even a higher rate of 5.6 per cent. The leading international steel body expects India's total steel demand is to

touch 7.4 MT in 2013 wherein the domestic expansion is pegged higher than the 3.1 per cent global growth.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

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