Jindal Steel and Power Limited - Power business operating at low PLFs - Antique

Jindal Power (JPL) is currently operating at close to 85% PLF, resulting in lower sale of power from its Tamnar 1,000MW plant largely due to transmission and evacuation issues. This coupled with lower tariff could impact near-term (3QFY13) power business earnings for JPL. Meanwhile, the recent hike in steel prices (3-5%) across product categories could boost steel business earnings, cushioning the impact of lower contribution from JPL.

We maintain our BUY rating on Jindal Steel and Power Ltd. (JSPL) with an SOTP-based target of INR470/sh as the current price factors in all possible negatives and offers a good opportunity to play a resource-strong company with captive resources. Besides, we expect increasing contribution from its strong pipeline of projects over FY13-17e.

We value JSPL's stake in JPL at INR228/share, taking into consideration the operating 1000 MW plant at Tamnar and the under construction 2,400MW power plant (Tamnar-II) for valuation purposes. We have valued these projects on an FCFE basis assuming a discounting factor of 13.5%.

Source : Equity Bulls

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