Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,973.00-45.4
Stock Analysis, IPO, Mutual Funds, Bonds & More

Stock pick of the week: Factors that have made JSPL a favourite of analysts

JSPL is expected to win the Chhattisgarh’s Gare Palma coal block allotment, as it is the highest bidder and also a former allottee of this mine. It will help the firm to make an annual savings of around Rs 500 crore and raise its EBITDA by around 7%.

, ET Bureau|
Updated: Nov 11, 2019, 10.55 AM IST
0Comments
Getty Images
stock-23
Besides saving costs, the Gare Palma coal block will also provide much-needed raw material security.
Jindal Steel & Power Limited (JSPL) reported huge losses in the second quarter of 2019-20 like many other steel manufacturing companies. For instance, its consolidated net loss widened to Rs 399 crore, compared to a loss of Rs 87 crore in the first quarter and a profit of Rs 279 crore during the second quarter of 2018-19. Due to a fall in the steel bar prices, its sales figure was also down by 10% y-o-y and q-o-q.

JSPL now is planning to deal with the the ongoing slowdown by increasing production, improving efficiency of its operations and introducing more value added products. For example, JSPL was able to put up a 10% volume growth in second quarter, thanks to increased production from its direct reduction of iron (DRI) plant in Angul, Odisha. To fight the price fall in traditional TMT bars, JSPL has doubled volume of rails, a better margin product.

Analysts’ views
Hold 3
Buy 16

JSPL also emerged as the highest bidder in Chhattisgarh’s Gare Palma coal block allocation. As per reports, JPSL has placed an attractive bid of Rs 230/tonne. Once this coal mine reaches its full capacity of 6mtpa, it will reduce the coal cost of JSPL by around Rs 1,000/tonne. This can result in an annual savings of around Rs 500 crore in coal cost and increase its 2020-21 EBITDA by around 7%.

In addition to cost savings, Gare Palma coal block will also provide the much-needed raw material security as JSPL can increase its steel production now without worrying about the shortage of domestic coal. The allocation is not expected to face any major hiccup as JSPL was also the former allottee of this mine and therefore is quite familiar with its geology and coal grade. Several other factors favouring JSPL are: having a dedicated screening and washery facilities, 1.4mtpa sponge iron ore plant hardly 40 km away from the mines, enough land for storage of dump, etc. These factors should make this mine profitable for JSPL.

Its subsidiary, Jindal Power, is now working on a low plant load factor (PLF) of around 30% and therefore, there is huge scope for improvement. Management has started taking steps to bring its debt under control. After reducing Rs 2,580 crore in the first half of 2019-20, its consolidated net debt remains at Rs 36,500 crore. Since some capex is expected now, debt reduction is expected to be around Rs 1,000 crore to Rs 1,500 crore in the second half. Any ramp up in power generation and further reduction of debt will be major triggers for the counter.

24-1
JSPL compared with ET Metal and Sensex. Stock price and index values normalised to a base of 100. Source: ETIG and Bloomberg.

Selection Methodology
We pick up the stock that has shown maximum increase in “consensus analyst rating” in the past month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.

Also Read

JSPL wins coal block in auction

Analyst Calls: JSPL, Grasim, Thermax, Lemon Tree

JSPL still hopeful of getting Gare Palma coal block: VR Sharma

JSPL drops 8% as SC refuses to pass order on Sarda Mines case

Share market update: Metal shares decline; JSPL slips 3%

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service