Angul plant s Turnaround, a reality now; Reiterate BUY January 22, 2018 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Amit Khimesra amitkhimesra@plindia.com +91 22 66322244 Rating BUY Price Rs264 Target Price Rs360 Implied Upside 36.4% Sensex 35,512 Nifty 10,895 (Prices as on January 19, 2018) Trading data Market Cap. (Rs bn) 241.5 Shares o/s (m) 914.9 3M Avg. Daily value (Rs m) 2239.9 Major shareholders Promoters 61.89% Foreign 13.75% Domestic Inst. 5.16% Public & Other 19.20% Stock Performance (%) 1M 6M 12M Absolute 46.8 84.5 230.2 Relative 41.8 73.4 200.2 How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2019 16.2 8.0 102.1 2020 27.3 18.1 51.1 Price Performance (RIC: JNSP.BO, BB: JSP IN) (Rs) 300 250 200 150 100 50 0 Jan 17 Mar 17 May 17 Source: Bloomberg Jul 17 Sep 17 Nov 17 Jan 18 We organised investor visit of Jindal Steel and Power (JSP) s Raigarh and Angul steel facilities and Tamnar IPP. The newly commissioned Basic Oxygen Furnace (BoF) at Angul reached production run rate of 25 heats/day (equivalent to 6250tpd) and expected to stabilise at its designed capacity of 33 heats/day by mid March 18. Keeping pace with ramp up in BoF, Blast Furnace (BF) is operating at 6ktpd. Higher production in BoF and restart of Neo Electric Oxygen Furnace (NEoF) would drive the increase in BF s production to 10ktpd by April 18. Management guided for an output of 6mn tonnes in FY19 (equally distributed between Angul and Raigarh) and cost reduction of Rs3000/t, driven by lower variable cost and higher scale benefit. Our entire rationale of increased scale, low cost and higher PLFs in JPL remains intact and will be reflected from Q1FY19 onwards as the new capacity stabilises. We maintain our BUY rating with revised TP of Rs360 (earlier Rs315), at EV/EBITDA of 7x FY20E. Strong conviction in meeting the FY19 production guidance: Commissioning of BoF completes the full chain of steel making in Angul plant. Satisfactory ramp up of BoF and successful stabilisation of BF drives management s guidance of achieving 250kt/month (3mtpa) in April at Angul facility. Including Raigarh Plant's 3mn tonnes, company targets to produce 6mn tonnes in FY19e. Guidance do not factor contribution from Gas based DRI in Angul though the cost of production would reduce with the replacement of expensive syn gas with cheaper coke oven gas. Company sees scope for further cost reduction in DRI plant with replacement of thermal coal with pet coke in coal gasifiers. Cost of production to reduce by Rs3000/t in Angul: Angul's DRI based steel plant failed to cross 40% utilisation due to poor grade of indigenous coal, technical issues and higher conversion cost. Plant Profitability is expected to see structural turnaround on the back of higher scale and lower variable costs. Management s guidance of Rs3,000/t reduction in cost would be led by 60% reduction in power consumption, higher scale (Fixed cost/t to fall by 55% to Rs1000) and lower conversion costs. Key financials (Y/e March) 2017 2018E 2019E 2020E Revenues (Rs m) 204,091 284,910 359,400 386,821 Growth (%) 13.7 39.6 26.1 7.6 EBITDA (Rs m) 40,167 60,400 93,963 103,459 PAT (Rs m) (19,090) (14,292) 14,806 24,996 EPS (Rs) (20.9) (15.6) 16.2 27.3 Growth (%) (30.1) (25.1) (203.6) 68.8 Net DPS (Rs) Profitability & Valuation 2017 2018E 2019E 2020E EBITDA margin (%) 19.7 21.2 26.1 26.7 RoE (%) (11.4) (9.7) 10.1 15.0 RoCE (%) 1.0 2.0 6.8 8.3 EV / sales (x) 3.5 2.5 1.9 1.7 EV / EBITDA (x) 17.7 11.8 7.4 6.3 PE (x) (12.7) (16.9) 16.3 9.7 P / BV (x) 1.6 1.7 1.6 1.3 Net dividend yield (%) Source: Company Data; PL Research Visit Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Prototype of Angul Plant India s largest BF of 4554M 3 output) (equivalent to 3.2mtpa hot metal January 22, 2018 2
BF touched 60% utilisation, producing 6ktpd Higher production in BoF and restart of Neo Electric Oxygen Furnace (NEoF) would drive the increase in BF s production to 10ktpd by April 18. Charging of hot metal in BoF in full swing. Likely to reach its designed capacity by March 2018 January 22, 2018 3
Income Statement (Rs m) Net Revenue 204,091 284,910 359,400 386,821 Raw Material Expenses 163,925 224,511 265,437 283,362 Gross Profit 40,167 60,400 93,963 103,459 Employee Cost Other Expenses EBITDA 40,167 60,400 93,963 103,459 Depr. & Amortization 39,490 40,326 41,470 41,141 Net Interest 33,896 37,924 38,052 35,387 Other Income 2,791 2,879 2,329 2,329 Profit before Tax (30,429) (14,971) 16,771 29,260 Total Tax (5,027) 1,013 3,463 5,697 Profit after Tax (25,402) (15,984) 13,308 23,563 Ex Od items / Min. Int. (1,134) 1,692 1,498 1,433 Adj. PAT (19,090) (14,292) 14,806 24,996 Avg. Shares O/S (m) 914.9 914.9 914.9 914.9 EPS (Rs.) (20.9) (15.6) 16.2 27.3 Cash Flow Abstract (Rs m) C/F from Operations 42,134 52,179 77,149 95,051 C/F from Investing (17,860) (16,520) (16,271) (14,142) C/F from Financing (28,366) (37,924) (58,052) (80,387) Inc. / Dec. in Cash (4,092) (2,265) 2,826 522 Opening Cash 5,017 926 (1,339) 1,487 Closing Cash 926 (1,339) 1,487 2,009 FCFF 15,605 (64,376) 35,400 55,808 FCFE 21,605 (64,376) 15,400 10,808 Key Financial Metrics Growth Revenue (%) 13.7 39.6 26.1 7.6 EBITDA (%) 33.3 50.4 55.6 10.1 PAT (%) (30.1) (25.1) (203.6) 68.8 EPS (%) (30.1) (25.1) (203.6) 68.8 Profitability EBITDA Margin (%) 19.7 21.2 26.1 26.7 PAT Margin (%) (9.4) (5.0) 4.1 6.5 RoCE (%) 1.0 2.0 6.8 8.3 RoE (%) (11.4) (9.7) 10.1 15.0 Balance Sheet Net Debt : Equity 3.1 3.4 2.9 2.3 Net Wrkng Cap. (days) (57) (40) (32) (31) Valuation PER (x) (12.7) (16.9) 16.3 9.7 P / B (x) 1.6 1.7 1.6 1.3 EV / EBITDA (x) 17.7 11.8 7.4 6.3 EV / Sales (x) 3.5 2.5 1.9 1.7 Earnings Quality Eff. Tax Rate 16.5 (6.8) 20.6 19.5 Other Inc / PBT (24.4) (19.2) 13.9 8.0 Eff. Depr. Rate (%) 6.2 5.6 5.7 5.7 FCFE / PAT (113.2) 450.4 104.0 43.2 Source: Company Data, PL Research. Balance Sheet Abstract (Rs m) Shareholder's Funds 154,003 139,710 154,516 179,513 Total Debt 474,046 474,046 454,046 409,046 Other Liabilities 14,834 13,000 11,481 10,120 Total Liabilities 642,882 626,756 620,043 598,678 Net Fixed Assets 554,808 530,988 505,773 478,757 Goodwill 5,485 5,485 5,485 5,485 Investments 3,577 3,577 3,577 3,577 Net Current Assets 79,012 86,707 105,208 110,859 Cash & Equivalents 2,781 517 3,342 3,864 Other Current Assets 149,960 168,338 193,627 204,533 Current Liabilities 73,729 82,148 91,761 97,538 Other Assets Total Assets 642,882 626,756 620,043 598,678 Quarterly Financials (Rs m) Y/e March Q4FY17 Q1FY18 Q2FY18 Q3FY18E Net Revenue 60,908 56,073 60,352 67,868 EBITDA 13,523 12,913 12,852 15,704 % of revenue 22.2 23.0 21.3 23.1 Depr. & Amortization 10,059 9,622 9,977 10,270 Net Interest 8,642 9,006 9,268 9,750 Other Income 2,087 615 896 700 Profit before Tax (556) (5,101) (6,994) (3,616) Total Tax 428 (887) (1,999) (825) Profit after Tax (495) (3,871) (4,479) (2,231) Adj. PAT (3,029) (3,871) (2,982) (2,231) Key Operating Metrics Standalone operations Metallics Sales (Tonnes) 218,450 29,680 54,540 69,600 Steel Prod. Sales (Tonnes) 3,155,521 4,096,967 6,001,580 6,541,061 Steel Sales Vol. (Tonnes) 3,373,971 4,126,647 6,056,120 6,610,661 Real. / tn Steel 27,439 30,121 30,600 31,492 JSPL Pwr (m kwh) 2,578 2,425 1,933 2,205 JSPL Real/ Kwh 3 3 3 3 Stdalon Steel EBITDA(Rs m) 24,247 34,087 60,417 68,664 Stdalon Pwr EBITDA(Rs m) 773 728 580 661 Stdalon Total EBITDA (Rs m) 25,020 34,814 60,997 69,326 Stdalon PAT (Rs m) (8,774) (13,041) 7,897 14,058 Jindal Power Ltd JPL Kwh sold (m) 8,769 11,240 13,552 13,950 JPL Rate / Kwh 3 4 4 4 JPL EBITDA(Rsm) 8,778 14,525 18,405 18,881 JPL PAT (Rs m) (12,050) (5,081) 333 2,116 Shadeed iron and Steel Shadeed EBITDA (US$ m) 107 226 283 293 PAT (US$ m) 30 143 201 211 Source: Company Data, PL Research. January 22, 2018 4
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