>JINDAL STEEL & POWER: Pellet and Steel sales volumes disappoints despite strong growth in steel production

■ Consolidated adjusted PAT grew 4% YoY to INR10.2b, below our estimate of INR11b. Reported consolidated PAT was INR9.96b, which included an exceptional gain of INR259m and forex loss of INR500m. JSPL has not adopted the new guidelines for amortization of forex loss over a longer period.

■ Jindal Power's revenue and PAT for the quarter were higher than we had estimated - at INR8b and INR4.8b, respectively. Power generation was 2,255mkwh at PLF of 102%. Power rate is estimated at INR3.94/kwh.

■ Two captive units of 135MW have been commissioned at Dongamahua, Chhattisgarh in January 2012. Also, these units have received open access permissions to sell power at merchant rates. Merchant tariffs are likely to be >INR4/kwh, while the cost is ~INR2.2/kwh. The improved margins and higher volumes are likely to drive earnings.

■ Power rates on surplus power sales to Odisha state from the 270MW CPP have been revised upwards by INR0.3/kwh to INR3.05/kwh.

■ Steel production during the quarter was a record 757k tons although sales were down 1% QoQ to 591k tons. Steel inventories built as of December 2011 have since been liquidated at higher realizations. We expect steel sales volumes to be higher and margins to be superior in 4QFY12.

■ Earnings growth is likely to moderate post 4QFY12 due to delays in the Angul steel and coal mine projects. We are cutting our EPS estimate for FY13 by 9% to INR49.9. Earnings are likely to grow 12.6% in FY13. The stock trades at 10.4x FY13E EPS. Maintain Buy.

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