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Nov 13th, 2010

Stock Data

Sector Steel

Face Value(Rs) Rs.1.00

52 wk. High/Low (Rs.) Rs.755.25/550.00

Volume (2 wk. Avg.) 61000

BSE Code 532286

Market Cap(Rs in Mn) 641215.74

Financials (Rs.in.mn) FY10 FY11E FY12E

Net Sales 110915.4 124225.2 142859.0

EBIDTA 59079.9 61851.0 69667.7

PAT 36345.6 38182.5 43513.0

EPS 39.03 40.89 46.59

P/E 17.59 16.79 14.74

JINDAL STEEL & POWER LTD BUY F

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SYNOPSIS With an annual turnover of US $2.1 billion

(over Rs. 10,000 crore), Jindal Steel & Power

Limited (JSPL) forms a part of the US $12

billion (over Rs. 60,000 crore) Jindal Group.

JSPL is a leading player in Steel, Power,

Mining, Oil & Gas and Infrastructure. The

company operates in sectors straddling across

Asia, Africa, South America and Georgia.

The Company has acquired Shadeed Iron &

Steel Co. LLC (SISCO), Oman, in June, 2010.

SISCO is setting up a 1.5 MTPA gas based DRI

plant in Oman. The Plant is expected to

commence commercial operations in the 1st

quarter of financial year 2011‐12. Expected

completed cost of this plant is estimated to be

USD 525 mn.

JSPL has consistently tapped new

opportunities by increasing production

capacity, diversifying investments, and

leveraging its core capabilities to venture into

new businesses.

Orissa steel plant Expansion with an

investment of over US $ 8.00 billion (Rs.

40,000 crore). The first phase of 3 million

tonne is expected to be commissioned by 2011.

Net Sales and PAT of the company are expected

to grow at a CAGR of 10% and 13% over 2009

to 2012E respectively.

1 Year Comparative Graph

Jindal Steel & Power Ltd BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.686.60 Rs.810.00

Share Holding Pattern

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Peer Group Comparison

Name of the company CMP(Rs.)

Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/BV(x)

Dividend (%)

Jindal Steel 686.60 641215.74 39.03 17.59 6.44 125.00

SAIL 191.45 790765.2 14.59 13.12 2.37 33.00

Ispat Indus 20.30 24815.6 - - - 0.00

JSL Stainless 116.45 21611.0 20.57 5.66 1.13 0.00

Investment Highlights

Q2 FY11 Results Update

Jindal Steel & Power Ltd disclosed results for the quarter ended September 2010.

Net sales for the quarter moved up 26% to Rs.30820.90 million as compared to

Rs.24452.80 million during the corresponding quarter last year. During the

quarter, the company has reported Net Profit increased to Rs. 8942.40 million

from Rs.8083.60 million in previous year same quarter. The Basic EPS of the

company stood at Rs.9.58 for the quarter ended September 2010.

Quarterly Results – Consolidate(Rs in mn)

As At Sep-10 Sep-09 %Change

Net sales 30820.90 24452.80 26%

Net Profit 8942.40 8083.60 11%

Basic EPS 9.58 8.68 10%

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Basic EPS of the company stood at Rs. 9.58

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Break up of Expenditure

Expenditure for the quarter stood at Rs.15804.10mn, which is around 39%

higher than the corresponding period of the previous year. Raw material cost of

the company for the quarter accounts for 21% of the sales of the company and

stood at Rs.6423.50mn from Rs.4861.00mn of the corresponding period of the

previous year. Other Expenditure cost increased 31%YoY to Rs.3922.8mn from

Rs.2986.60mn and accounts for 13% of the revenue of the company for the

quarter.

OPM and NPM for the quarter stood at 49% and 29% respectively from 55% and

33% respectively of the same period of the last year.

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Unit I of 135 MW power plant

Jindal Steel & Power Ltd has informed that Unit II of 135 MW power plant of the

Company set up at Dongamahua, Raigarh (Chhattisgarh) was synchronized on

September 23, 2010 and is under the process of stabilization. During this period,

this unit has achieved full capacity generation of 135MW. Trial operations will be

carried out shortly and thereafter this unit will start commercial generation of

power. Unit I of 135 MW power plant of the Company set up at Dongamahua,

Raigarh (Chhattisgarh) had been synchronized which is generating commercial

power since September, 2010.

Jindal Steel Power to acquire Shadeed Iron Steel Co.

Jindal Steel & Power Ltd has through its 100% subsidiary Jindal Steel & Power

(Mauritius) Ltd, Mauritius, (JSPLM) has agreed to acquire Shadeed Iron & Steel

Co. LLC (Shadeed) a company incorporated under the laws of the Sultanate of

Oman for a consideration of US$ 464 million including the assumption of

liabilities of up to US$79 million by executing definitive Share Purchase

Agreement and other transaction documents on May 19, 2010. Shadeed is

installing 1.5 MTPA Gas based Hot Briquetted Iron (HBI) plant at Sohar Industrial

Port area of Sohar, Oman.

Dividend Declaration

Jindal Steel & Power Ltd has recommended dividend @125% i.e. Rupees 1.25 per

equity share of Re. 1/- each.

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Company Profile

Jindal Steel & Power Limited (JSPL) was established in the year 1990 by hiving off

the Raigarh & Raipur Divisions of Jindal Strips Ltd. JSPL forms a part of the $ $12

billion (over Rs. 60,000 crore) Jindal Group. JSPL is a leading player in Steel, Power,

Mining, Oil & Gas and Infrastructure. The company produces economical and

efficient steel and power through backward integration from its own captive coal and

iron-ore mines and passes on the benefits to its customers. Naveen Jindal, the

youngest son of the legendry late O P Jindal, drives JSPL and its group companies

Jindal Power Ltd, Jindal Petroleum Ltd., Jindal Cement Ltd. and Jindal Steel Bolivia.

The O P Jindal Group has emerged as one of India's most dynamic business groups

over the past three decades. Today, the group is a multi-billion, multi-location, multi-

product business empire. From mining iron ore and coal, the group produces sponge

iron, ferro alloys and a wide range of hot-rolled and cold-rolled steel products ranging

from HR coils/sheets/plates, hot-rolled structural sections and rails to CR

coils/sheets, high-grade pipes and value added items such as stainless steel,

galvanized steel & coated pipes. It has not only diversified into power generation but

also into petroleum, infrastructure, diamond and high value metals & mineral

exploration. The group has manufacturing facilities across India, US & Indonesia and

marketing/representative offices across the globe.

An enterprising spirit and ability to discern future trends have been the driving force

behind the company's remarkable growth. The company has scaled new heights with

the combined force of innovation, adaptation of new technology and the collective

skills of its 15,000 strong, committed workforce. It has won wide acclaim for its

efficient operations and commitment to environment & society.

JSPL has consistently tapped new opportunities by increasing production capacity,

diversifying investments, and leveraging its core capabilities to venture into new

businesses. JSPL’s investment commitments in steel, power, oil & gas and mining

have touched more than $ 30 billion (Rs. 1,50,000 crore). The company, today, is the

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largest private sector investor in the state of Chhattisgarh with a total investment

commitment of over $ 6.25 billion (Rs. 31,250 crore).

The company is having altogether eight facilities in India, of which four are in

Chhatisgarh, two in Orissa and one in Jharkhand while its international facility is

located at Bolivia (South America). JSPL is exploring steel production and mining

projects in other parts of the world, such as Mozambique, South Africa, Mongolia,

Brazil and Indonesia. JSPL has diversified into exploration of diamond, gold, precious

stones and other high value metals and minerals in Chhattisgarh, Jharkhand and

Republic of Congo.

Expansion Projects:

Orissa

A 12.5 million tonne integrated steel plant and 2600 MW captive Power Plant in

phases, with an investment of over US $ 8.00 billion (Rs. 40,000 crore). The

first phase of 3 million tonne is expected to be commissioned by 2011.

Jharkhand

An 11 million tonne integrated steel plant and 2600 MW captive Power Plant in

phases, with an investment of over US $ 6.00 billion (Rs. 30,000 crore).

Chhattisgarh

7 million tonne steel plant, 2 million tonne cement plant and 1600 MW Captive

Power Plant with a total investment of over US $ 5.20 billion (Rs. 26,000 crore).

Jindal Power Limited, a subsidiary of JSPL, is expanding the capacity of its

existing 1000 MW Thermal Power Plant at Tamnar by setting up a 2400 MW

thermal power plant with an investment of US $ 2.40 billion (Rs. 13,410 crore).

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Other group company’s are:

JSL Ltd.

Jindal Saw Ltd.

JSW Steel Ltd.

Chhattisgarh Energy Trading Company Limited (CETCL) is an affiliate of Jindal

Steel and Power Limited. It was incorporated in Sept.2008 .Currently CETCL is

category ‘II’ licensee.

Jindal Power Limited - Jindal Power Limited (JPL), an affiliate of JSPL has set

up India’s first mega power project – the 1000 MW O P Jindal Super Thermal

Power Plant at Raigarh, Chhattisgarh.

Product Range of the company includes:

Rails- Giving impetus to the significant rail sector, JSPL has pioneered the

manufacturing of 120 meter long track rails in the Indian sub-continent. The world’s

longest track rails are a testimony of JSPL’s manufacturing capabilities where

continuous innovation is a practice rather than an exception.

Parallel Flange Sections - JSPL pioneered the production of medium and large size

Hot Rolled Parallel Flange Beams and Column Sections (H-Beams) in India. The

beams are cost effective and provide design-flexibility.

Plates & Coils- JSPL is equipped with India's first 'one of a kind' state-of-the-art

plate mill that produces plates and coils of 3.5 and 3 meters width, respectively, for

the first time in the private sector. The products are of premium quality, owing to its

sound steel refining properties.

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Semi-Finished Products- JSPL has a capacity to produce about three million tonnes

per annum of semis which are primarily used for captive use in JSPLs’ 0.75 million

tonne per annum capacity Rail & Universal Beam Mill and 1.0 million tonne per

annum capacity Plate & Stackle Mill. Power- the company started power generation

over a decade back. In the beginning it was a captive power facility using waste heat

from the rotary kiln boilers and the coal rejects of the washery. Over the years

however, Jindal Steel and Power Ltd (JSPL) and its affiliate Jindal Power Ltd. (JPL)

have come up in a big way and are producing about 1400 MW power through both

captive and commercial facilities.

Ferro Chrome - At JSPL, high-grade chrome ore, one of the pre-requisites for making

ferro chrome, is sourced from the captive chrome ore mines in Sukinda Valley of

Orissa.

Sponge Iron - JSPL has world's largest coal-based sponge iron manufacturing facility

and stands out as the market leader in coal-based sponge iron industry within India.

Efficient backward integration has rendered JSPL as the only sponge iron

manufacturer in the country, with its own captive raw material resources and power

generation capacity helping the company to monitor both price and quality of its

products.

Awards/ Achievements:

• JSPL has been ranked 36th among India’s 100 Most Profitable Companies by

Business & Economy Magazine, September 2009.

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Financials Results

12 Months Ended Profit & Loss Account (Consolidate)

Value(Rs.in million) FY09A FY10A FY11E FY12E

12m 12m 12m 12m

Description

Net Sales 108510.1 110915.4 124225.25 142859.04

Other Income 623.6 602.8 359.56 381.13

Total Income 109133.7 111518.2 124584.81 143240.17

Expenditure -56815.6 -52438.3 -62733.75 -73572.4

Operating Profit 52318.1 59079.9 61851.06 69667.77

Interest -4566.5 -3575.8 -2950.91 -3386.17

Gross Profit 47751.6 55504.1 58900.15 66281.6

Depreciation -9640.6 -9969.6 -10567.78 -11201.84

Profit before Tax 38111 45534.5 48332.37 55079.76

Tax -8039.5 -9188.9 -10149.8 -11566.75

Profit after Tax 30071.5 36345.6 38182.58 43513.01

Equity Capital 154.65 931.2 933.9 933.9

Reserves 70072 98412 136594.58 180107.58

Face Value 1 1 1 1

EPS 194.45 39.03 40.89 46.59

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Consolidate)

Value(Rs.in million) 30-Mar-09 30-Jun-10 30-Sep-10 30-Dec-10

3m 3m 3m 3m(E)

Description

Net Sales 31755.9 30009.8 30820.9 31437.32

Other Income 303 89.4 37.4 41.14

Total Income 32058.9 30099.2 30858.3 31478.46

Expenditure -17169.3 -14361.9 -15804.1 -16095.91

Operating Profit 14889.6 15737.3 15054.2 15382.55

Interest -523 -861.4 -781.8 -766.16

Gross Profit 14366.6 14875.9 14272.4 14616.39

Depreciation -2545.7 -2509.1 -2730.5 -2867.03

Profit before Tax 11820.9 12366.8 11541.9 11749.36

Tax -2187.1 -2797.1 -2599.5 -2467.37

Profit after Tax 9633.8 9569.7 8942.4 9282

Equity Capital 931.2 933.9 933.9 933.9

Face Value 1 1 1 1

EPS 10.35 10.25 9.58 9.94

*A=Actual, *E=Estimated

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Key Ratios

Particulars FY09 FY10 FY11E FY12E

EPS (Rs.) 194.45 39.03 40.89 46.59

EBITDA Margin (%) 48.21% 53.27% 49.79% 48.77%

PAT Margin (%) 27.71% 32.77% 30.74% 30.46%

P/E Ratio (x) 3.58 17.59 16.79 14.74

ROE (%) 42.82% 36.59% 27.76% 24.03%

ROCE (%) 35.61% 26.81% 22.32% 20.83%

EV/EBITDA (x) 2.06 10.82 10.37 9.2

Debt-Equity Ratio 0.71 0.84 0.67 0.55

Book Value (Rs.) 454.1 106.68 147.26 193.86

P/BV 1.53 6.44 4.66 3.54

Charts:

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Outlook and Conclusion

At the current market price of Rs.686.60, the stock is trading at 16.79 x FY11E

and 14.74 x FY12E respectively.

Price to Book Value of the stock is expected to be at 4.66 x and 3.54 x respectively for FY11E and FY12E.

Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs.40.89 and Rs.46.59 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 13% over 2009 to 2012E respectively.

The Company has acquired Shadeed Iron & Steel Co. LLC (SISCO), Oman, in June, 2010. SISCO is setting up a 1.5 MTPA gas based DRI plant in Oman. The Plant is expected to commence commercial operations in the 1st quarter of financial year 2011‐12. Expected completed cost of this plant is estimated to be USD 525 mn.

JSPL has consistently tapped new opportunities by increasing production capacity, diversifying investments, and leveraging its core capabilities to venture into new businesses.

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Orissa steel plant Expansion with an investment of over US $ 8.00 billion (Rs. 40,000 crore). The first phase of 3 million tonne is expected to be commissioned by 2011.

Unit I of 135 MW power plant of the Company set up at Dongamahua, Raigarh (Chhattisgarh) had been synchronized which is generating commercial power since September, 2010.

On the basis of EV/EBITDA, the stock trades at 10.37 x for FY11E and 9.20 x for FY12E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.810.00 for Medium to Long term investment.

Industry Overview

Sector structure/Market size

The steel industry in India has been moving from strength to strength and according

to the Annual Report 2009-10 by the Ministry of Steel, India has emerged as the fifth

largest producer of steel in the world and is likely to become the second largest

producer of crude steel by 2015-16.

Recently, Steel Minister, Mr Virbhadra Singh said that India will become the world's

second-largest steel producer by 2012, more than doubling its capacity to 124 million

tonnes (MT) as part of the push being given to assist overall infrastructure

development.

Production

Steel production rose 4.2 per cent to reach 60 MT in 2009-2010, according to the

Ministry of Steel.

The National Steel Policy 2005 had projected an annual steel consumption growth of 7

per cent based on GDP growth rate of 7-7.5 per cent and production of 110 MT of

crude steel by 2019-2020. Nonetheless, with the current rate of ongoing greenfield and

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brownfield projects, the Ministry of Steel has projected that these growth trends are

likely to be exceeded and it is envisaged that in the next five years demand will grow at

higher annual average growth rate of over 10 per cent as compared to around 7 per

cent growth achieved between 1991-92 and 2005-06.

Moreover, according to the ministry, the crude steel production capacity in the country

by 2011-12 will be nearly 124 MT.

According to the Ministry of Steel, 222 memorandum of understanding (MoUs) have

been signed with various states for planned capacity of around 276 MT. Major

investment plans are in Orissa, Jharkhand, Chattisgarh, West Bengal, Karnataka,

Gujarat and Maharashtra.

According to the Annual Report 2009-10 by the Ministry of Steel, domestic crude steel

production grew at a compounded annual growth rate of 8.6 per cent during 2004-05

and 2008-09.

Consumption

India's steel consumption rose 8 per cent in the year ended March 2010, over the

same period a year ago on account of improved demand from sectors like automobile,

infrastructure and housing. The country’s steel consumption increased to 56.3 MT in

the 12 months to March 2010 from 52.3 MT in the previous year, as per the Ministry

of Steel.

Investments

A host of steel companies have lined up major investment proposals. Furthermore,

with an expanding consumer market, the Indian steel industry is likely to receive huge

domestic and foreign investments.

The domestic steel sector has attracted a staggering investment of about US$ 238

billion, according to the Minister of State for Steel, Mr A. Sai Prathap.

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This consists of nearly 222 MoUs signed between the investors and various state

governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West

Bengal.

• SAIL is planning to set up a 12-million tonne plant in Jharkhand.

• In December, India’s largest engineering conglomerate Larsen & Toubro (L&T)

and state-owned Nuclear Power Corporation of India Limited (NPCIL) formed a

US$ 373.2 million joint venture for specialised steel and forging products.

• Stainless steel manufacturer and exporter, Varun Industries, is setting up a

US$ 171.8 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.

• Tata Steel has entered into a joint venture with Japan’s Nippon Steel for

production and sales of automotive cold-rolled flat products at Jamshedpur.

The JV is expected to invest US$ 400 million to set up an automobile venture in

India.

• Steel major, JSW Steel has earmarked a capex of US$ 1.6 billion for 2010-11

and plans to increase capacity of its Bellary plant in Karnataka from 7 MT to 10

MT by end of 2010-11.

Government Initiative

As per the Press Information Bureau, during 2009, the government took a number of

fiscal and administrative steps to contain steel prices. Central value added tax

(CENVAT) on steel items was reduced from 14 per cent to 10 per cent with effect from

February 2009.

Moreover, in the Union Budget 2010-11, the government has allocated US$ 37.4

billion to the infrastructure sector and has increased the allocation for road transport

by 13 per cent to US$ 4.3 billion which will further promote the steel industry.

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should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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