HOLDING PERIOD – THREE MONTHS PLUS
- JINDAL STEEL & POWER
- Present Price – Rs.715
- Projected Price – Rs.1000
- Jindal Steel & Power ( JSPL) has complete backward integration of three key raw -materials- coal, iron-ore and power and this makes it the lowest-cost producer of sponge iron in India giving it a high competitive edge.
- Its power division is the new growth driver for both revenue and earnings. Costs savings, volume growth in steel and power are the additional catalysts.
- JSPL is one of the three private sector companies to start mining in own captive coal. The coal reserves of peers are not in the same league. It is the only company with operational coal block who can sell merchant power.
- We believe the stock deserves to trade at a premium, as the power business would generate about 70% of profits. This shields the company from volatility in the steel business.
- Being a fully integrated business model, the company would be able to sustain its margin and upside can be expected from higher-than-estimated power tariff, as it is a merchant power company.
- JSPL is expected to witness a mammoth jump in revenue over the next two years on account of the company’s enhanced capacity for steel and value added products. JSPL has the world’s largest coal based sponge iron manufacturing facility in Raigarh. JSPL uses a combination of the EAF and BF routes for production of steel, which reduces its reliability on coking coal. JSPL is currently in a sweet spot, wherein its major expansions have taken place and the company will boost volumes by ramping up its capacity utilizations. It is the only H-beam (used for construction) producer in India. Its 100% subsidiary, JPL has fully commenced commercial operations. This will aid the company inreaping rich benefits from the deficit in the power sector. Through its Bolivian deal, JSPL has added a new dimension of exploration and mining in its business activities. We expect the future outlook for the companyto be positive. One of the prinicipal reasons why JSPL will go up is because its fully owned subsidiary Jindal Power Limited is coming out with a IPO in January 2010 and this will do a lot of wealth unlocking for JSPL.
BUYING IS ADVISED FOR MEDIUM TO LONG TERM INVESTMENT.
