{"id":1969,"date":"2010-07-16T17:55:53","date_gmt":"2010-07-16T12:25:53","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/?page_id=1969"},"modified":"2020-03-11T15:30:15","modified_gmt":"2020-03-11T10:00:15","slug":"company-shastra-12-2","status":"publish","type":"page","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/company-shastra-12-2\/","title":{"rendered":"Company Shastra"},"content":{"rendered":"

Jindal Steel & Power Ltd.- Will it replicate its earnings growth of the past?<\/h1>\n

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JSPL’s 10 YEAR X-RAY*:\u00a0Green (Very Good) <\/span><\/strong><\/h2>\n

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(* 10 YEAR X-RAY shows the financial performance of a company in the last 10 years.) <\/strong><\/p>\n

JSPL, in brief<\/h2>\n

Jindal Steel & Power Limited (JSPL) is a Jindal Group company with an annual turnover of over Rs. 11,000 Cr. JSPL operates in a promising mix of two business segments- Power & Steel. It is a leading player in the Steel Industry. The company produces economical and efficient steel and power through backward integration from its own captive coal and iron-ore mines. JSPL is the one of the lowest cost producer of sponge iron in India. Backward integration has given JSPL the distinction of being the only sponge iron producer with its own captive raw material sources and power. JSPL sells power on merchant basis, which commands higher realizations than other power generation companies that are subject to regulated tariffs. The company serves both domestic as well as international markets. It is also entering into niche value-added segment such as rounds, billets, blooms and slabs<\/p>\n

What does JSPL\u2019s past say?<\/strong>\"\"<\/strong><\/h2>\n

JSPL has performed very well over the last ten years . The company has clocked an impressive CAGR of 36.5% for its Net Sales, showing an increasing demand for its products<\/strong><\/p>\n

The company\u2019s operating margins have improved over the years<\/strong>. This is mainly due to the significant reduction in raw material costs as a % of sales turnover; a result of the captive iron mines and power plants. In fact, Jindal\u2019s margins at an average of 38%, have been much better than its peers like SAIL, JSW etc. This advantage has helped the company register robust EPS growth rates<\/strong><\/p>\n

The company\u2019s Debt-to-Net Profit ratio is slightly more than 3 which is the result of ongoing capacity expansions and is expected to grow sharply in future, due to its capacity additions and global acquisitions.<\/p>\n

Looking at its overall financial performance, we can say that the company\u2019s 10 YEAR X-RAY is Green (Very Good) <\/strong><\/span><\/p>\n

(To view the company\u2019s 10 year performance in a simple color-coded X-ray, visit MoneyWorks4me.com<\/a>)<\/strong><\/p>\n

What is JSPL\u2019s Short-Term Outlook?<\/strong><\/h2>\n

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Rising Steel Imports Disturbing: <\/strong><\/span>Rising cheap steel imports is disturbing and puts pressure on the local steel industry. Steel prices have fallen in the past few months mainly on account of oversupply of steel from other countries<\/p>\n

JSPL to gain as China scraps Export Rebates:<\/span> <\/strong>Chinese Ministry of Finance has recently scraped a tax rebate (9-13%) previously available on exports of \u00a0\u00a0\u00a0steel products with effect from 15 July 2010. This move is expected to benefit Indian steel players like JSPL<\/p>\n

Debt Woes:<\/strong><\/span> Debt on the books of JSPL stands at Rs 5700 Cr. while that of JPL stands at Rs 2500 Cr. As a result, huge debt- service is affecting the profitability of the company. JSPL is planning to raise about Rs 2100 Cr. by issue of warrants to promoters on a preferential basis to help cut debt<\/p>\n

The domestic steel demand scenario has been improving since the last two quarters, backed by increased government spending in infrastructure and recovery in the auto industry & capital goods industry. Demand from real estate is also expected to pick up in coming quarters. Globally steel prices are increasing and as the demand for steel increases steel prices are expected to remain firm in coming months. Power demand is also expected to increase substantially. All these factors together, is expected to increase JSPL\u2019s sales and margins in the coming quarters<\/p>\n

Considering all these factors, we can expect the short-term future outlook of JSPL to be Green (Very Good)<\/strong><\/span><\/p>\n

What is JSPL\u2019s Long-Term Outlook?<\/h2>\n

JSPL has had an excellent financial track record and has a bright short-term outlook. The company has clocked robust growth rates in its EPS.\u00a0 Moneyworks4me valuations have given it a long-term expected EPS growth rate of 23%<\/p>\n

What will help the company maintain this earnings growth rate in the future? <\/strong><\/p>\n

1) Integrated lowest-cost Steel Producer:<\/span><\/strong> With more than 20% market share, JSPL is the one of the lowest cost producer of sponge iron in India, due to its own captive resources of raw material and power; helping it reduce costs and increase operating margins. It has the largest coal based sponge iron facility in the world with an installed capacity of 6, 50,000 MTPA. Also, captive coal mines minimize fuel risks and reduce input and transportation costs for its power projects<\/p>\n

2) JSPL\u2019 Global Acqusitions to fuel future growth: <\/span><\/strong><\/p>\n