Motilal Oswal's research report on Jindal Steel and Power
JSP is all set to capture rising domestic steel demand amid the rapid expansion in infrastructure, railways, housing and construction. We believe JSP is adding capacity at a right time to capture the robust growth opportunity. JSP is a leading integrated steel manufacturer (~9.6mt of crude steel production capacity) in India with strong raw material (RM) linkages, which ensures adequate and timely supply. JSP has two iron ore mines with a cumulative capacity of over 10.6mt and has recently acquired four thermal coal mines with total R&R of ~500mt. Around 60% of its iron ore requirement is met via captive mines. Once its thermal coal mines are operational, they will cater to 12-15mt of its thermal coal requirement, which will drive structural cost reduction and make JSP one of the lowest-cost steel producers globally. A multi-pronged strategy: JSP is taking measures to increase margin and improve cost efficiency. JSP is improving its integration by 1) setting up a coal and iron ore mines, which will ensure consistent RM supply and thus reduce costs; 2) setting up a 12mt pellet facility at Angul, which will further improve the availability of pellets and reduce the freight cost from Barbil; 3) setting up a 18mt 200km slurry pipeline; 4) the acquisition of power assets from Monnet Power, which is in close vicinity to the Angul facility to drive cost synergies, 5) the commissioning of HSM to further enhance the margin profile; and 6) setting up BoF/EAF at Angul, which will further enhance the cumulative crude steel capacity to 15.9mt by FY25 from 9.6mt.
Outlook
The stock trades at 4.5x FY25E EV/EBITDA. We reiterate BUY on the stock with a TP of INR720 (5.5x FY25E EV/EBITDA).
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