F I R S T C A L L BUY R E S E A R C H JINDAL STEEL & POWER LTD

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Elmer McKinney
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C.M.P: Rs.686.60 Stock Data Sector Face Value(Rs) JINDAL STEEL & POWER LTD 1 Year Comparative Graph Jindal Steel & Power Ltd Steel Rs.1.00 52 wk. High/Low (Rs.) Rs.755.25/550.00 Volume (2 wk. Avg.

com Target Price: Rs.810.00 BSE SENSEX BUY Nov 13 th, 2010 SYNOPSIS With an annual turnover of US $2.1 billion (over Rs.

JSPL is a leading player in Steel, Power, Mining, Oil & Gas and Infrastructure. The company operates in sectors straddling across Asia, Africa, South America and Georgia.

The Plant is expected to commence commercial operations in the 1st quarter of financial year 2011 12. Expected completed cost of this plant is estimated to be USD 525 mn.

1 C.M.P: Rs Stock Data Sector Face Value(Rs) JINDAL STEEL & POWER LTD 1 Year Comparative Graph Jindal Steel & Power Ltd Steel Rs wk. High/Low (Rs.) Rs / Volume (2 wk. Avg.) BSE Code Market Cap(Rs in Mn) Share Holding Pattern V.S.R. Sastry Equity Research Desk vsrsastry@firstcallindiaequity.com Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com Target Price: Rs BSE SENSEX BUY Nov 13 th, 2010 SYNOPSIS With an annual turnover of US $2.1 billion (over Rs. 10,000 crore), Jindal Steel & Power Limited (JSPL) forms a part of the US $12 billion (over Rs. 60,000 crore) Jindal Group. JSPL is a leading player in Steel, Power, Mining, Oil & Gas and Infrastructure. The company operates in sectors straddling across Asia, Africa, South America and Georgia. The Company has acquired Shadeed Iron & Steel Co. LLC (SISCO), Oman, in June, SISCO is setting up a 1.5 MTPA gas based DRI plant in Oman. The Plant is expected to commence commercial operations in the 1st quarter of financial year Expected completed cost of this plant is estimated to be USD 525 mn. JSPL has consistently tapped new opportunities by increasing production capacity, diversifying investments, and leveraging its core capabilities to venture into new businesses. Orissa steel plant Expansion with an investment of over US $ 8.00 billion (Rs. 40,000 crore). The first phase of 3 million tonne is expected to be commissioned by Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 13% over 2009 to 2012E respectively. Financials (Rs.in.mn) FY10 FY11E FY12E Net Sales EBIDTA PAT EPS P/E F I R S T C A L L R E S E A R C H 1

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/BV(x) Dividend (%) Jindal Steel SAIL Ispat Indus JSL Stainless Investment Highlights Q2 FY11 Results Update Jindal Steel & Power Ltd disclosed results for the quarter ended September Net sales for the quarter moved up 26% to Rs million as compared to Rs million during the corresponding quarter last year. During the quarter, the company has reported Net Profit increased to Rs million from Rs million in previous year same quarter. The Basic EPS of the company stood at Rs.9.58 for the quarter ended September Quarterly Results Consolidate(Rs in mn) As At Sep-10 Sep-09 %Change Net sales % Net Profit % Basic EPS % 2

3 Basic EPS of the company stood at Rs

4 Break up of Expenditure Expenditure for the quarter stood at Rs mn, which is around 39% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 21% of the sales of the company and stood at Rs mn from Rs mn of the corresponding period of the previous year. Other Expenditure cost increased 31%YoY to Rs mn from Rs mn and accounts for 13% of the revenue of the company for the quarter. OPM and NPM for the quarter stood at 49% and 29% respectively from 55% and 33% respectively of the same period of the last year. 4

5 Unit I of 135 MW power plant Jindal Steel & Power Ltd has informed that Unit II of 135 MW power plant of the Company set up at Dongamahua, Raigarh (Chhattisgarh) was synchronized on September 23, 2010 and is under the process of stabilization. During this period, this unit has achieved full capacity generation of 135MW. Trial operations will be carried out shortly and thereafter this unit will start commercial generation of power. Unit I of 135 MW power plant of the Company set up at Dongamahua, Raigarh (Chhattisgarh) had been synchronized which is generating commercial power since September, Jindal Steel Power to acquire Shadeed Iron Steel Co. Jindal Steel & Power Ltd has through its 100% subsidiary Jindal Steel & Power (Mauritius) Ltd, Mauritius, (JSPLM) has agreed to acquire Shadeed Iron & Steel Co. LLC (Shadeed) a company incorporated under the laws of the Sultanate of Oman for a consideration of US$ 464 million including the assumption of liabilities of up to US$79 million by executing definitive Share Purchase Agreement and other transaction documents on May 19, Shadeed is installing 1.5 MTPA Gas based Hot Briquetted Iron (HBI) plant at Sohar Industrial Port area of Sohar, Oman. Dividend Declaration Jindal Steel & Power Ltd has recommended i.e. Rupees 1.25 per equity share of Re. 1/- each. 5

6 Company Profile Jindal Steel & Power Limited (JSPL) was established in the year 1990 by hiving off the Raigarh & Raipur Divisions of Jindal Strips Ltd. JSPL forms a part of the $ $12 billion (over Rs. 60,000 crore) Jindal Group. JSPL is a leading player in Steel, Power, Mining, Oil & Gas and Infrastructure. The company produces economical and efficient steel and power through backward integration from its own captive coal and iron-ore mines and passes on the benefits to its customers. Naveen Jindal, the youngest son of the legendry late O P Jindal, drives JSPL and its group companies Jindal Power Ltd, Jindal Petroleum Ltd., Jindal Cement Ltd. and Jindal Steel Bolivia. The O P Jindal Group has emerged as one of India's most dynamic business groups over the past three decades. Today, the group is a multi-billion, multi-location, multiproduct business empire. From mining iron ore and coal, the group produces sponge iron, ferro alloys and a wide range of hot-rolled and cold-rolled steel products ranging from HR coils/sheets/plates, hot-rolled structural sections and rails to CR coils/sheets, high-grade pipes and value added items such as stainless steel, galvanized steel & coated pipes. It has not only diversified into power generation but also into petroleum, infrastructure, diamond and high value metals & mineral exploration. The group has manufacturing facilities across India, US & Indonesia and marketing/representative offices across the globe. An enterprising spirit and ability to discern future trends have been the driving force behind the company's remarkable growth. The company has scaled new heights with the combined force of innovation, adaptation of new technology and the collective skills of its 15,000 strong, committed workforce. It has won wide acclaim for its efficient operations and commitment to environment & society. JSPL has consistently tapped new opportunities by increasing production capacity, diversifying investments, and leveraging its core capabilities to venture into new businesses. JSPL s investment commitments in steel, power, oil & gas and mining have touched more than $ 30 billion (Rs. 1,50,000 crore). The company, today, is the 6

7 largest private sector investor in the state of Chhattisgarh with a total investment commitment of over $ 6.25 billion (Rs. 31,250 crore). The company is having altogether eight facilities in India, of which four are in Chhatisgarh, two in Orissa and one in Jharkhand while its international facility is located at Bolivia (South America). JSPL is exploring steel production and mining projects in other parts of the world, such as Mozambique, South Africa, Mongolia, Brazil and Indonesia. JSPL has diversified into exploration of diamond, gold, precious stones and other high value metals and minerals in Chhattisgarh, Jharkhand and Republic of Congo. Expansion Projects: Orissa A 12.5 million tonne integrated steel plant and 2600 MW captive Power Plant in phases, with an investment of over US $ 8.00 billion (Rs. 40,000 crore). The first phase of 3 million tonne is expected to be commissioned by Jharkhand An 11 million tonne integrated steel plant and 2600 MW captive Power Plant in phases, with an investment of over US $ 6.00 billion (Rs. 30,000 crore). Chhattisgarh 7 million tonne steel plant, 2 million tonne cement plant and 1600 MW Captive Power Plant with a total investment of over US $ 5.20 billion (Rs. 26,000 crore). Jindal Power Limited, a subsidiary of JSPL, is expanding the capacity of its existing 1000 MW Thermal Power Plant at Tamnar by setting up a 2400 MW thermal power plant with an investment of US $ 2.40 billion (Rs. 13,410 crore). 7

8 Other group company s are: JSL Ltd. Jindal Saw Ltd. JSW Steel Ltd. Chhattisgarh Energy Trading Company Limited (CETCL) is an affiliate of Jindal Steel and Power Limited. It was incorporated in Sept.2008.Currently CETCL is category II licensee. Jindal Power Limited - Jindal Power Limited (JPL), an affiliate of JSPL has set up India s first mega power project the 1000 MW O P Jindal Super Thermal Power Plant at Raigarh, Chhattisgarh. Product Range of the company includes: Rails- Giving impetus to the significant rail sector, JSPL has pioneered the manufacturing of 120 meter long track rails in the Indian sub-continent. The world s longest track rails are a testimony of JSPL s manufacturing capabilities where continuous innovation is a practice rather than an exception. Parallel Flange Sections - JSPL pioneered the production of medium and large size Hot Rolled Parallel Flange Beams and Column Sections (H-Beams) in India. The beams are cost effective and provide design-flexibility. Plates & Coils- JSPL is equipped with India's first 'one of a kind' state-of-the-art plate mill that produces plates and coils of 3.5 and 3 meters width, respectively, for the first time in the private sector. The products are of premium quality, owing to its sound steel refining properties. 8

9 Semi-Finished Products- JSPL has a capacity to produce about three million tonnes per annum of semis which are primarily used for captive use in JSPLs 0.75 million tonne per annum capacity Rail & Universal Beam Mill and 1.0 million tonne per annum capacity Plate & Stackle Mill. Power- the company started power generation over a decade back. In the beginning it was a captive power facility using waste heat from the rotary kiln boilers and the coal rejects of the washery. Over the years however, Jindal Steel and Power Ltd (JSPL) and its affiliate Jindal Power Ltd. (JPL) have come up in a big way and are producing about 1400 MW power through both captive and commercial facilities. Ferro Chrome - At JSPL, high-grade chrome ore, one of the pre-requisites for making ferro chrome, is sourced from the captive chrome ore mines in Sukinda Valley of Orissa. Sponge Iron - JSPL has world's largest coal-based sponge iron manufacturing facility and stands out as the market leader in coal-based sponge iron industry within India. Efficient backward integration has rendered JSPL as the only sponge iron manufacturer in the country, with its own captive raw material resources and power generation capacity helping the company to monitor both price and quality of its products. Awards/ Achievements: JSPL has been ranked 36th among India s 100 Most Profitable Companies by Business & Economy Magazine, September

10 Financials Results 12 Months Ended Profit & Loss Account (Consolidate) Value(Rs.in million) FY09A FY10A FY11E FY12E 12m 12m 12m 12m Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Equity Capital Reserves Face Value EPS *A=Actual, *E=Estimated 10

11 Quarterly Ended Profit & Loss Account (Consolidate) Value(Rs.in million) 30-Mar Jun Sep Dec-10 3m 3m 3m 3m(E) Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Equity Capital Face Value EPS *A=Actual, *E=Estimated 11

12 Key Ratios Particulars FY09 FY10 FY11E FY12E EPS (Rs.) EBITDA Margin (%) 48.21% 53.27% 49.79% 48.77% PAT Margin (%) 27.71% 32.77% 30.74% 30.46% P/E Ratio (x) ROE (%) 42.82% 36.59% 27.76% 24.03% ROCE (%) 35.61% 26.81% 22.32% 20.83% EV/EBITDA (x) Debt-Equity Ratio Book Value (Rs.) P/BV Charts: 12

13 13

14 14

15 Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY11E and x FY12E respectively. Price to Book Value of the stock is expected to be at 4.66 x and 3.54 x respectively for FY11E and FY12E. Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 13% over 2009 to 2012E respectively. The Company has acquired Shadeed Iron & Steel Co. LLC (SISCO), Oman, in June, SISCO is setting up a 1.5 MTPA gas based DRI plant in Oman. The Plant is expected to commence commercial operations in the 1st quarter of financial year Expected completed cost of this plant is estimated to be USD 525 mn. JSPL has consistently tapped new opportunities by increasing production capacity, diversifying investments, and leveraging its core capabilities to venture into new businesses. 15

16 Orissa steel plant Expansion with an investment of over US $ 8.00 billion (Rs. 40,000 crore). The first phase of 3 million tonne is expected to be commissioned by Unit I of 135 MW power plant of the Company set up at Dongamahua, Raigarh (Chhattisgarh) had been synchronized which is generating commercial power since September, On the basis of EV/EBITDA, the stock trades at x for FY11E and 9.20 x for FY12E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview Sector structure/market size The steel industry in India has been moving from strength to strength and according to the Annual Report by the Ministry of Steel, India has emerged as the fifth largest producer of steel in the world and is likely to become the second largest producer of crude steel by Recently, Steel Minister, Mr Virbhadra Singh said that India will become the world's second-largest steel producer by 2012, more than doubling its capacity to 124 million tonnes (MT) as part of the push being given to assist overall infrastructure development. Production Steel production rose 4.2 per cent to reach 60 MT in , according to the Ministry of Steel. The National Steel Policy 2005 had projected an annual steel consumption growth of 7 per cent based on GDP growth rate of per cent and production of 110 MT of crude steel by Nonetheless, with the current rate of ongoing greenfield and 16

17 brownfield projects, the Ministry of Steel has projected that these growth trends are likely to be exceeded and it is envisaged that in the next five years demand will grow at higher annual average growth rate of over 10 per cent as compared to around 7 per cent growth achieved between and Moreover, according to the ministry, the crude steel production capacity in the country by will be nearly 124 MT. According to the Ministry of Steel, 222 memorandum of understanding (MoUs) have been signed with various states for planned capacity of around 276 MT. Major investment plans are in Orissa, Jharkhand, Chattisgarh, West Bengal, Karnataka, Gujarat and Maharashtra. According to the Annual Report by the Ministry of Steel, domestic crude steel production grew at a compounded annual growth rate of 8.6 per cent during and Consumption India's steel consumption rose 8 per cent in the year ended March 2010, over the same period a year ago on account of improved demand from sectors like automobile, infrastructure and housing. The country s steel consumption increased to 56.3 MT in the 12 months to March 2010 from 52.3 MT in the previous year, as per the Ministry of Steel. Investments A host of steel companies have lined up major investment proposals. Furthermore, with an expanding consumer market, the Indian steel industry is likely to receive huge domestic and foreign investments. The domestic steel sector has attracted a staggering investment of about US$ 238 billion, according to the Minister of State for Steel, Mr A. Sai Prathap. 17

18 This consists of nearly 222 MoUs signed between the investors and various state governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal. SAIL is planning to set up a 12-million tonne plant in Jharkhand. In December, India s largest engineering conglomerate Larsen & Toubro (L&T) and state-owned Nuclear Power Corporation of India Limited (NPCIL) formed a US$ million joint venture for specialised steel and forging products. Stainless steel manufacturer and exporter, Varun Industries, is setting up a US$ million stainless steel-cum-alloy steel plant at Rohat, Jodhpur. Tata Steel has entered into a joint venture with Japan s Nippon Steel for production and sales of automotive cold-rolled flat products at Jamshedpur. The JV is expected to invest US$ 400 million to set up an automobile venture in India. Steel major, JSW Steel has earmarked a capex of US$ 1.6 billion for and plans to increase capacity of its Bellary plant in Karnataka from 7 MT to 10 MT by end of Government Initiative As per the Press Information Bureau, during 2009, the government took a number of fiscal and administrative steps to contain steel prices. Central value added tax (CENVAT) on steel items was reduced from 14 per cent to 10 per cent with effect from February Moreover, in the Union Budget , the government has allocated US$ 37.4 billion to the infrastructure sector and has increased the allocation for road transport by 13 per cent to US$ 4.3 billion which will further promote the steel industry. 18

19 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. 19

20 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B. Prathap IT D. Ashakirankumar Automobile A. Rajesh Babu FMCG H.Lavanya Oil & Gas A.Prathibha Diversified G.Bharani Bhukta Banking Dheeraj Bhatia Diversified Manoj kotian Diversified Nimesh Gada Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com 20

F I R S T C A L L BUY R E S E A R C H. 3M India Ltd SYNOPSIS. Dec 23 nd, Year Comparative Graph

F I R S T C A L L BUY R E S E A R C H. 3M India Ltd SYNOPSIS. Dec 23 nd, Year Comparative Graph C.M.P: Rs.3555.00 1 Year Comparative Graph Stock Data Sector 3M India Ltd 3M India Ltd Diversified Face Value Rs. 10.00 52 wk. High/Low (Rs.) 4250.95/1775.00 Volume (2 wk. Avg.) 879000 BSE Code 523395