Motilal Oswal is bullish on Jindal Steel and Power has recommended buy rating on the stock with a target price of Rs 150 in its research report dated May 05, 2020.
Motilal Oswal 's research report on Jindal Steel and Power
JSPL produced 550kt steel and related products during Apr’20 (up 5% YoY). This was on the back of record high production from the Angul Blast Furnace, which produced 298kt hot metal, clocking 10kt daily. Other related products include granulated pig iron and other intermediary products. Though domestic demand remained dry during the month, production was boosted by large export orders, primarily of billets from China due to the shortage of intermediates there. Apr’20 sales stood at 335kt, of which 248kt (74% of total) were exports. Exports were up 109% MoM while implied domestic sales were down ~80% MoM. The balance production in Apr’20 is at the ports, waiting to be exported out; sales would be booked in May’20. We note that while these export volumes would earn lower EBITDA margins (likely ~INR5,000/t), it is still positive as this should help recover fixed costs if plants earn positive cash flows, which is critical in this environment.
Outlook
At CMP, the stock trades at 4.1x FY22E EV/EBITDA. We value JSPL stock using SoTP methodology and value the steel business at 4.0x. The power business is valued using DCF method. We arrive at a target price of INR150/share.
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