Update on Indian Equity Market:
On Wednesday, markets ended higher with Nifty closing 61 points higher at 15,879. TATASTEEL (+5.0%), JSWSTEEL (+2.7%), HINDALCO (+2.1%) were the top gainers on the index while TITAN (-2.0%), ONGC (-1.2%), and MARUTI (-0.9%) were the top losers for the day. Among the sectoral indices, METAL (+2.2%), REALTY (+2.0%), and FINANCIAL SERVICES (+0.6%) were the top gainers, MEDIA (-0.2%), and AUTO (-0.1%) were the only losers.
Excerpts of an interview with Mr. V R Sharma, MD, and CEO of Jindal Steel and Power on CNBCTV18 dated 5th July 2021:
- Short-term pressure on Steel Prices is seen in International and European Spot Markets, with the prices hovering around USD 1,100 and 1,200 per tonne. This due to lower exports to Europe due to tariff and quota fears.
- There is a value difference of around USD 200-250 per tonne between export and Indian domestic markets. There is a scope of reducing the delta to around USD 150 per tonne.
- There is pressure on the demand for hot-rolled coils which forms part of the company’s exports which are 35-40% of the company’s total sales. This has resulted in the prices reducing to USD 1,020 per tonne.
- The prices of other products are stable.
- There is a softening of about Rs 1,000-1,200 per tonne across all the products, which is normal because international prices play a vital role in today’s markets.
- In terms of domestic demand, steel plates have shown a good demand and hot-rolled coils have shown moderate demand. The demand is very sluggish in the structural steel, construction steel, and rebar segments.
- The company has produced 2.03 million metric tonnes of steel in 1QFY22 and is on track to manufacture 8.3 million metric tonnes for FY22. The exports for 1QFY22 were 0.6 million metric tonnes with full-year exports expected to be around 2.8 million metric tonnes.
- The Company has Rs 165bn of debt as of 1QFY22 which the company is planning to reduce below Rs 100bn over FY22.
Asset Multiplier Comments:
- Due to the Covid-19 pandemic, the demand for steel across domestic and international markets has been impacted. With the economic recovery, there’s optimism for the sector.
- The Company is taking efforts to deleverage its balance sheet in order to improve its performance across key operating metrics which will help the company grow further.
Consensus Estimates (Source: market screener website):
- The closing price of Jindal Steel and Power was ₹ 400/- as of 7-July-2021. It traded at 5x/ 8x the EPS estimate of ₹ 75/ ₹ 51 for FY22E/23E respectively.
- The consensus price target is ₹ 513/- which trades at 10x the EPS estimate for FY23E of ₹ 51/-
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