>JINDAL STEEL AND POWER LIMITED (INDIABULLS)

Power segment to boost growth

For FY09, Jindal Steel and Power Ltd. (JSPL) reported a strong set of numbers. The net sales (consolidated) of the Company increased by a staggering 97.6% yoy to Rs. 108.4 bn, and the net profit jumped by 140.6% yoy to Rs. 30.1 bn. The Company’s strong results are primarily attributable to the commencement of operations of Jindal Power Ltd. (JPL)’s 1,000 MW merchant power plant (MPP), and a 35.8% yoy increase in the average sales realisation of saleable steel. We continue to hold a positive outlook on the Stock, mainly on the back of the stable revenue visibility in the Power business and the resurgence of domestic demand in the Metal sector. However, the stock has moved up sharply since our last report, and based on our valuations it is fairly valued at the CMP. Thus, we give a Hold rating to the stock.

Rising domestic steel demand to stimulate the Metal segment: We expect JSPL (standalone) revenue to increase by 8–10% in FY10. The recovery in the Automobile industry and an increase in infrastructure investments have encouraged the demand for steel. Further, we expect the demand from the Real Estate sector to increase due to the fall in the interest rates and the sharp correction in the property prices. Thus, along with the revival in the economy and the restoration of demand, we have increased our base metals average realisation estimates for the Company to ~Rs. 38,000 per tonne in FY10.

Power business continues to be a growth driver: We expect JPL’s revenue to increase by 12–15% in FY10. In FY09, JPL has fully commissioned its 1,000 MW MPP that sells power on merchant basis through short-term PPAs; such agreements command high realisations of around Rs. 5–8 per unit. Further, as the new capacity stabilises, we expect production to increase to ~8,000 mn units in FY10, as compared to 6,207 mn units in FY09. The current power deficit situation in the country is expected to persist, and this should further help the Company achieve stable revenue.

To see full report: JINDAL STEEL & POWER LTD.