Jindal Steel and Power Q3FY12 result analysis

Jindal Steel & Power, a major steel producer and power generation company, on Wednesday, January 18, 2012 announced its result for the December quarter 2011. In spite of various challenges such as high input cost and lower demand, the topline of the company on a consolidated basis grew by 37 per cent on YoY basis to Rs 4,357 crore. Meanwhile, the bottomline, as expected, remained under pressure and grew by 7 per cent on YoY basis to Rs 1,015.88 crore. disappoints
 
The YoY jump in the revenue during the quarter was on the back of decent growth in the sales volume of iron ore pellets and power which grew by 124 per cent and 37 per cent on YoY basis respectively. The significant jump in the growth of iron ore pellets was due to its newly commissioned 5 MTPA capacity in Barbil, Orissa.

However, the EBITDA margin of the company on YOY basis declined by 900 bps to 40.05 per cent. This was largely on account of the higher coking coal prices and other input costs which continued to remain high during the quarter. The raw material and power/fuel cost went up significantly by 126 per cent and 75 per cent on YoY basis respectively. However, PAT on QoQ jumped by 15 per cent due to an exceptional gain of Rs 25 crore against the loss of Rs 74 crore in the September quarter 2011.

The coking coal prices in the international market have declined to USD 235 from USD 265 per tonne in the last three months but due to 7 per cent depreciation in the rupee the gain has been negated arising out of the fall.

In conclusion, we believe that the performance of the company, despite various challenges, has remained quite good. The jump in sales volume despite slowdown in consumption and improvement in the EBITDA margin on QoQ basis is commendable. However, the environment still seems to be challenging in terms of high input cost, depreciation of rupee and the slow pick-up in demand in the coming months. This can dent the performance of the company in the coming quarter.

At the current price of Rs 526 and with trailing EPS of 40.5 the scrip is trading at a P/E multiple of 12.96. The current valuations look marginally higher given the scenario which is still looking challenging in terms of the input cost and the slow pick-up in demand and therefore we recommend that investors should avoid the scrip in terms of a short to medium-term perspective.