Analysts are getting more bullish on this steel stock

Just like other steel companies, Jindal Steel & Power Ltd (JSPL) also reported fabulous numbers for the first quarter of 2021-22. While its consolidated revenues jumped up by 66% y-o-y, its reported net profit zoomed by 10 times. Significant y-o-y increase in Ebitda / tonne was another highlight. Ebitda stands for earnings before interest, tax, depreciation and amortisation. Since construction activities have restarted after the second wave induced restrictions, JSPL is expected report strong numbers for the second quarter as well. Though the recent spike in coking coal prices will increase cost of production, JSPL has built up coking coal inventories at significantly lower costs and the same would last till September 2021. Though this advantage will go from the third quarter, JSPL is expected to maintain its margins at higher levels and the recent fall in iron ore prices will be a major help towards that. In addition to its own coal mines in Mozambique, recent opening of Russell Vale mine in Australia will also provide cushion to JSPL, which is now dependent on imports and the domestic market for its coking coal requirements.86505342In addition to the overall bullishness towards domestic steel companies, analysts are also getting bullish on JSPL due to specific measures taken by the management. For instance, JSPL is divesting other divisions to reduce debt and to focus on its core steel business. The revised proposal to sell 96.42% stake in Jindal Power to promoter owned company Worldone is recently approved by shareholders. In addition to generating more than Rs 7,000 crore, hiving off thermal power plants and the resultant reduction in carbon footprint will also improve its ESG score and thereby its access to global capital markets. Since Worldone will also takeover Jindal Power’s debt, this divestment is expected to bring down JSPL’s debt by around Rs 9,300 crore.Relative performance Despite covid related disruptions and fall in domestic steel demand, JSPL was able to operate at 88% capacity utilisation levels. To benefit from the increased demand during the post covid period, JSPL plans to increase its capacity by 85% by 2024-25. Recently, the Odisha government declared JSPL as the preferred bidder for the Kasia iron ore mine. Since this is an existing mine, JSPL can start operations shortly and this will enhance its backward integration efforts. This will also reduce JSPL’s dependence on NMDC and other merchant miners for supply of iron ore.Selection Methodology: We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 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.

from Economic Times https://ift.tt/3obhAUA