Jindal Steel and Power share price declines 7% despite good Q2 results. This is what brokerages have to say

Jindal Steel and Power Ltd (JSPL) share price declined  more than 7% during intraday trades on Wednesday post its Q2 results, which  were declared after-market hours on Tuesday. The company while reported a strong net profit growth it is the slight extension in expansion timeline and the concerns on rising coal costs that has led to the analysts cutting forward estimates. The impact of the rise in coking coal prices seen during Q2 will be reflected during the second half.

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Analysts at Prabhudas Lilladher have cut FY24 and 25 EBITDA estimates by 9% and 7% respectively on higher coking coal price assumption and delays in capacity addition respectively.

Motilal Oswal Finacial Services Ltd also said that "Considering the substantial increase in coal cost in the last few months and delayed capex, we have revised our FY24 and FY25  Ebitda estimates by 13% and 6% respectively.

Jindal Steel and Power's ongoing capex at Angul has been delayed by a few quarters and a majority of the capex is now expected to be completed by the end of FY25, said analysts at MOFSL. The capex outlay has also been increased by ₹7000 Crore to ₹31000 crore, which they attributed to increase is attributed to scope changes and configuration adjustment.

Jindal Steel reported net profit at ₹1,390 crore though grew 534% year-on-year the same was also helped by almost negligible taxes.

The operating performance remained strong and adjusted Ebitda stood at ₹2,213 Crore up 19% year-on-year adjusted for one-off  forex gains of ₹73 Cr during the quarter as per the company.. Strong performance was driven by sharp reduction in costs which offset seasonally weak pricing environment during the quarter. The production and sales stood at 1.90mt grew 4% year-on-year and 2.01mt (flat yoy) respectively

The increase in Ebitda was led by lower input costs as per analysts at MOFSL though partially offset by the lower average selling price. Ebitda per tonne as per MOFSL stood at ₹11,372 a tonne.

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Jindal steel & Power reported strong operating performance in the September quarter, driven by 9% sequential volume growth in standalone business, said analysts at Prabhudas Lilladher. They said that the Ebitda was in line with their estimates as lower than expected realization was compensated for by better volumes. Average coking coal cost for 2Q came lower by $70 a tonne sequentially as coal prices had softened in Q1. However rising coal prices now would mean that average coal prices for Jindal Steel and Power may rise by $55 a tonne in Q3 as per analysts.

However, over the longer term the company's efforts on backward integration and ensuring coal blocks will accrue benefit. Analysts at JM Financial Institutional Securities Ltd said that the company’s coal security is expected to improve post commencement of coal blocks - Utkal C, Utkal B1, B2 and Gare Palma IV/6. Mining in Utkal C and Gare Palma IV/6 (already mining) are expected to commence in 3Q subject to receipt of necessary approvals. This will be sufficient to meet needs of Angul plants. 

The volume growth prospects remain strong led by commissioning on Hot Strip Mill which will also lead to improved product mix over FY23-26 as per analysts at Prabhudas Lilladher. However, there has been delays of few quarters in blast furnace commissioning which would impact FY25 volumes they added. They have cut our FY25 volume assumption accordingly and introduce FY26 estimates. Incremental volumes from pellet plant and cost savings from captive coal mines would contribute to FY25 Ebitda margins, as per  them.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.