JSPL share price zooms 6% post Q1 earnings; here's what brokerages say

Shares of Jindal Steel and Power Ltd (JSPL) rose 6 per cent to hit an intraday high of Rs 424.60 after the company reported a whooping ten-fold rise in its consolidated profit during the June quarter of this fiscal.   The company reported a net profit of Rs 2,516 crore for the quarter ended June 2021 compared to a profit of Rs 236 in the year-ago period. Total income grew 63 per cent to Rs 10.643.17 crore in the June-ended quarter against Rs 6,519.27 crore a year ago.   The stock opened 0.8 per cent higher at Rs 404 against the previous close of Rs 400.75. With a market capitalisation of Rs 42,963 crore, the large cap share stands higher than 5 day, 10 day, 20 day, 50 day, 100 day, and 200-day moving averages. It has gained 99.6 per cent in the last one year and risen 58 per cent since the beginning of this year.   "While margin for JSP is expected to drop in the near term due to exhaustion of zero cost Sarda iron inventory (in Apr’21) and higher coking coal prices, EBITDA/t should remain healthy ~ Rs 12,000/t in FY23E (v/s an average of ~ Rs 9,500/t in FY16-20)," said Motilal Oswal.   "We raise our FY22E EBITDA by 13% on expectations of higher steel prices in the fiscal. Strong cash flows, coupled with cash proceeds of Rs 3010 crore from the JPL divestment, should lead to a fall in net debt to Rs 3450 crore by FY23E, implying 0.3x FY23E EBITDA. We reiterate our 'Buy' rating with a target price of Rs 495 per share," the brokerage house added.   "JSPL reported weaker than expected Q1FY22 EBITDA its visibility on growth remains strong backed by strong balance sheet and proven execution. Looking ahead, it will continue to deleverage the balance sheet as it benefits from a strong steel cycle. Its newly announced expansion projects provide clarity on capital allocation and growth visibility," said IDBI Capital   "We believe JSPL stock is likely to be a re-rating candidate overcoming few years as 1) it completes sale of Power business (Jindal Power), 2) it continues to reduce debt, and 3) it expands steel capacities," it noted.   The brokerage house has revised its target price to Rs 538 per share (earlier Rs 609) and has lowered the FY23 EBITDA forecast by 5%.   According to MarketsMojo, the company has a low ability to service debt as it has a high Debt to EBITDA ratio of 4.66 times. The technical trend has deteriorated from Bullish on July 28, 2021, and the stock is technically in a Mildly Bullish range now. However, the stock is trading at a discount compared to its average historical valuations and the valuation seems to be attractive right now.   JSPL in a statement said that during the June 2021 quarter, it produced 2.01 million tonne (MT) steel; higher from 1.67 MT in April-June of the preceding fiscal year.   "Continued cash generation, declining finance cost, lower capex (capital expenditure) and debt associated with JPL (Jindal Power Ltd) moving out of JSPL''s consolidated books have all contributed to continued deleveraging in 1QFY22.   "Consolidated net debt has declined further to Rs 15,227 crore in 1QFY22 from Rs 22,146 crore in March 2021," it said.