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JSPL shares recover after sharp fall

Ajay Modi     June 13, 2013
Jindal Steel & Power Ltd (JSPL)'s stock has recovered 17 per cent from the low it hit on Tuesday (June 11), the day the news of a case being registered against Chairman Naveen Jindal , and CBI searches at his offices and home, broke. On Tuesday, JSPL's stock at the Bombay Stock Exchange touched a 52-week low of Rs 202 though it ended the day at Rs 226.35. But the stock has closed in the green on both the two subsequent trading days. It touched a high of Rs 239.50 on Thursday (June 13) and closed at Rs 236.25. Since early May this year the stock had dropped 33 per cent. The sharp correction has prompted brokerages to upgrade it.

Motilal Oswal upgraded the stock to 'Neutral'. Referring to the JSPL coal blocks that have come under a cloud following the CBI case, the brokerage firm said that none of them are either operational or expected to become operational in the next two to three years.

"Further, JSPL has not incurred material capital expenditure either on the coal blocks or associated projects. The operating assets also remain unaffected", it added. It said that even though JSPL's main business remains challenging due to slowing steel demand and the problems in power sector, a sharp correction of 50 per cent since its last downgrade called for a review of the stock. In January this year, Motilal Oswal had downgraded JSPL to 'Sell'.

Brokerage firm CLSA has also upgraded the stock to 'Buy' from 'Underperform' with a target price of Rs 320.  In its report, it points out that the three coal blocks that contribute to JSPL's existing power and steel operations were allocated in 1996 and 1998 and are not within the scope of the CBI's investigation. These three blocks were not part of the CAG report on coal block allocations either, which looked at coal blocks allocated during the 2004-2009 period only. While there is a chance of the post 2004 coal blocks being taken away from JSPL, CLSA saw low probability of any such thing happening to the coal blocks allocated in the 1990s. Thus the risk to JSPL's existing power and steel operations too was low, the report concluded.

"Our stress case valuation for JSPL is Rs 200 per share, where we take away the benefits of captive coal from both existing power and steel operations. Stock is now within 10 per cent of this stress case value, which makes us believe that risk-reward is favourable post the sharp 15 per cent correction," the report adds. "We expect strong absolute returns once either the company/promoters are acquitted of any wrong doing or if it becomes clear that the coal blocks allocated in the nineties will not be touched," it said.

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