Motilal Oswal Suggests Buying This Steel & Energy Stock For Up To 16% Gains

Motilal Oswal Financial Services bets on Jindal Steel & Power Ltd and gives a buy call for a target price of Rs 440. The shares of Jindal Steel & Power recently touched the 52 week high in April 2022. The brokerage has suggested the stock has the potential to gain up to 16%.

Stock Overview: Target Price, Return, CMP, 52 Week Low & High

The stock opened today at Rs 384.95 and closed at Rs 377.85 on 31 May 2022. Currently, it is trading at Rs 380.85, gaining 0.79%. It has the potential to gain 16 per cent based on the current market price of Rs 380.85 and the brokerage's Target price of Rs 440. The share price of the Jindal Steel and Power dropped by roughly 8 per cent in the last year. It hit a 52-week low of Rs 340 on 29 November 2021, and a 52-week high of Rs 577.80 on 11t April 2022.

Reported a weak 4QFY22; volume growth to continue

Jindal Steel & Power reported a weak 4QFY22. A 4% Revenue miss translated into a ~20% EBITDA miss. The management had guided at a strong 4Q performance in its 3QFY22 earnings call, but stumped on delivery, citing various 'one-offs'. Consolidated revenue grew 21% YoY and 15% QoQ to Rs 143b in 4QFY22. The 4% miss was driven by a 6% lower than estimated ASP and a 2% beat on volumes. EBTIDA fell 42% YoY and 7% QoQ to Rs 31b, 19% below our estimate, driven by an 18% miss on standalone EBITDA. Other operating expenses, which include power and fuel costs, were the key drivers of the EBITDA miss. Lower than expected dispatches from captive coal mines in Australia and Mozambique led to higher fuel costs. Adjusted PAT fell 24% YoY, but grew 6% QoQ to Rs 19b. The 14% miss on our estimate was driven by an EBITDA miss, but was partly covered through lower than expected tax provisions. Revenue/EBITDA/PAT grew 32%/5%/39% YoY to Rs 511b/Rs 155b/ Rs 87b in FY22, driven by a mix of higher ASP and volumes.

Imposition of export duty to lower EBITDA

The current measures taken by the Finance Minister to curb iron and steel prices will result in savings of Rs 4,000/t from an expected decline in domestic iron ore prices and savings from a reduction in BCD on coal. It also expects a benefit of ~Rs 2,400/t from depreciation of the INR v/s the USD. Overall, the management expects a benefit of Rs 6,400/t in 1QFY23 to offset the correction in steel prices. "We are building in an EBITDA/t of Rs 14,000 for FY23, despite a reduction in iron ore prices, cut in customs duty on coal, and increasing captive coal supplies, which may not materialize to the extent as suggested by the management. We have also reduced our captive coal assumptions to 1.4mt as against the management's guidance of 2mt," the brokerage has said.

Buy for a target price of Rs 440/share

"We have cut our FY23 EBITDA/PAT estimate by 18%/25%, factor in a standalone EBITDA of Rs 13,527/t, reduced our valuation multiple to 4.5x (from 5x), and peg net debt at Rs 63b (v/s the management's guidance of nil net debt by FY23-end). Despite all this, we still find value in the stock. The company reported a net debt of Rs 88b. It has received Rs 30b as part of the completion of the sale of Jindal Steel & Power to its promoters. The stock is trading at 4x our revised FY23 EV/EBITDA estimate. We expect China to kick start its slowing economy with another round of stimulus and view the export duties imposed by the Indian government to be temporary. We see these two factors as near-term triggers for the stock. We maintain our Buy rating with a revised Target Price of Rs 440/share," Motilal Oswal has said.

About The Company - Jindal Steel & Power Ltd.

Jindal Steel & Power Ltd is one of India's leading steel producers with a significant presence in sectors like mining and power generation. With a market cap of Rs 38,493 crore, the company is an industrial powerhouse. The company has a dominant presence in the steel, power, mining and infrastructure sectors. Led by Mr Naveen Jindal, the company's enviable success story has been scripted essentially by its resolve to innovate, set new standards, enhance capabilities, enrich lives and ensure that it stays true to its cherished value system. The group has a global presence through subsidiaries, mainly in Australia, Botswana, Indonesia, Mauritius, Mozambique, Madagascar, Namibia, South Africa, Tanzania and Zambia.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.