Date of Research – 19 January 2016
Price – Rs. 61.65
About the Company
Jindal Steel and Power Limited (“Jindal Steel” or the “Company”) was set up in the year 1952 and is one of India’s major steel producers with a significant presence in the mining, power generation and infrastructure sectors. The Company is a part of the US$ 18 billion diversified O. P. Jindal Group. Jindal Steel has expanded its steel, power and mining businesses to various parts of the world particularly in Asia, Africa and Australia. The Company’s product portfolio caters to major infrastructure & housing projects in the country.
The Company makes medium and heavy hot rolled parallel flange beams and column sections used in the construction of multi-storied buildings, bridges, refineries, airports, metro rail projects and cement making plants. In addition, Jindal Steel provides crane and track rails to assist in construction activities.
The Company is also involved in iron ore mining primarily in Bolivia; coal mining activities in Indonesia, Australia, and South Africa; exploring diamonds in Chhattisgarh and Jharkhand; and providing IT services for steel, energy, oil and gas, realty, and education sectors. Jindal Steel holds interest in five oil and gas blocks in Georgia; one in Bolivia; and one in India.
On October 2013, Jindal Steel has acquired a majority stake in Gujarat NRE Coking Coal, the Australian subsidiary of Kolkata-based Gujarat NRE Coke, to minimise risk in price.
Key Financial Figures
| Consolidated | (Rs. Cr) | ||||
|---|---|---|---|---|---|
| Particulars | FY 2013 | FY 2014 | FY 2015 | FY 2016 | FY 2017 |
| Total Income from Operations | 19,806.78 | 20,004.04 | 19,400.67 | 18,412.18 | 22,696.24 |
| Expenses | 13,138.13 | 14,227.64 | 13,917.21 | 14,929.40 | 18,038.21 |
| Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) | 6,668.65 | 5,776.40 | 5,483.46 | 3,482.78 | 4,658.03 |
| Depreciation | 1,539.22 | 1,829.20 | 2,732.83 | 2,819.39 | 3,949.02 |
| Finance Costs | 858.28 | 1,500.82 | 2,607.34 | 3,280.13 | 3,389.59 |
| Other income | 136.42 | 65.63 | 225.60 | 177.64 | 9.99 |
| Exceptional items | 574.12 | – | 1,911.64 | 235.83 | 372.31 |
| PBT | 3,833.45 | 2,512.01 | (1,542.75) | (2,674.93) | (3,042.90) |
| Tax | 921.83 | 618.21 | (88.16) | (676.30) | (502.68) |
| PAT (before Minority Interest and share of Associates) | 2,911.62 | 1,893.80 | (1,454.59) | (1,998.63) | (2,540.22) |
| Profit/ (loss) attributable to Minority Interest | 41.71 | (14.01) | (173.84) | (98.02) | – |
| Share of profit / (loss) of Associates | (40.2) | (2.55) | (2.63) | 1.40 | (2.70) |
| Consolidated Profit / (Loss) for the year | 2,910.11 | 1,910.36 | (1,278.12) | (1,902.01) | (2,537.52) |
Profitability Analysis
| Consolidated | (%) | ||||
|---|---|---|---|---|---|
| Particulars | FY 2013 | FY 2014 | FY 2015 | FY 2016 | FY 2017 |
| Operating Profit Margin Ratio | 33.67 | 28.88 | 28.26 | 18.92 | 20.52 |
| Net Profit Margin Ratio | 14.70 | 9.47 | (7.50) | (10.85) | (11.19) |
Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.
Key Balance Sheet Figures
| Sources of Funds / Liabilities | (Rs. Cr) | ||||
|---|---|---|---|---|---|
| Particulars | FY 2012 | FY 2013 | FY 2014 | FY 2015 | FY 2016 |
| Share Capital | 93.48 | 93.48 | 91.49 | 91.49 | 91.49 |
| Reserves & Surplus | 18,017.62 | 21,158.78 | 22,519.05 | 20,950.58 | 18,055.59 |
| Employee Stock Option Outstanding | – | – | – | – | – |
| Net worth (shareholders funds) | 18,111.1 | 21,252.26 | 22,610.54 | 21,042.07 | 18,147.08 |
| Minority Interest | 307.10 | 557.27 | 1,080.22 | 857.25 | 800.28 |
| Long term borrowings | 11,179.63 | 15,401.64 | 25,900.25 | 35,399.57 | 36,361.71 |
| Current liabilities | 14,042.16 | 17,930.43 | 22,271.74 | 15,631.66 | 16,565.07 |
| Other long term liabilities and provisions | 175.6 | 594.50 | 736.68 | 587.59 | 317.36 |
| Deferred Tax Liabilities | 1,191.95 | 1,336.54 | 1,472.67 | 2,018.47 | 1,347.66 |
| Total Liabilities | 45,007.54 | 57,072.64 | 74,072.10 | 75,536.61 | 73,539.16 |
| Application of Funds / Assets | (Rs. Cr) | ||||
|---|---|---|---|---|---|
| Particulars | FY 2012 | FY 2013 | FY 2014 | FY 2015 | FY 2016 |
| Fixed Assets | 30,145.97 | 38,484.84 | 52,207.10 | 55,167.67 | 57,263.30 |
| Noncurrent Investments | 377.62 | 808.86 | 341.83 | 352.79 | 357.71 |
| Current assets | 12,197.01 | 15,181.21 | 18,009.67 | 16,332.28 | 12,641.91 |
| Long term advances and other noncurrent assets | 2,195.18 | 2,423.38 | 2,920.48 | 3,135.42 | 3,276.24 |
| Goodwill on consolidation (net) | 91.76 | 174.35 | 593.02 | 548.45 | – |
| Total assets | 45,007.54 | 57,072.64 | 74,072.10 | 75,536.61 | 73,539.16 |
Efficiency Analysis
| Particulars | FY 2012 | FY 2013 | FY 2014 | FY 2015 | FY 2016 |
| ROCE | 23.61 | 17.92 | 11.65 | 9.57 | 6.30 |
| ROE / RONW | 21.89 | 13.69 | 8.45 | (6.07) | (11.01) |
Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.
Valuation Analysis
| Consolidated | |||||
|---|---|---|---|---|---|
| Particulars | FY 2013 | FY 2014 | FY 2015 | FY 2016 | FY 2017 |
| Total Income from Operations (Rs. Cr.) | 19,806.78 | 20,004.04 | 19,400.67 | 18,412.18 | 22,696.24 |
| Growth (%) | 8.78 % | 1.00 % | (3.02 %) | (5.10 %) | 23.27 % |
| PAT (Rs. Cr.) | 2,911.62 | 1,893.80 | (1,454.59) | (1,998.63) | (2,540.22) |
| Growth (%) | (27.25 %) | (34.96 %) | (176.81 %) | – | – |
| Earnings Per Share – Basic (Rs. ) | 31.13 | 20.53 | (13.97) | (20.79) | (27.73) |
| Earning Per Share – Diluted (Rs. ) | 31.13 | 20.53 | (13.97) | (20.79) | (27.73) |
| Price to Earnings | 11.18 | 12.33 | – | – | – |
Dividend History
The Company has maintained an average dividend yield of 0.68 % over the last 5 financial years.
Liquidity and Credit Analysis
Current Ratio
Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Jindal Steel’s average current ratio over the last 5 financial years has been 0.85 times.
Long Term Debt to Equity Ratio
Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.
Jindal Steel’s average long term debt to equity ratio over the last 5 financial years has been 0.91 times which indicates that the Company is operating with moderate levels of debt and may face some constraints to meet its debt obligations.
Interest Coverage ratio
Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.
Jindal Steel’s average interest coverage ratio over the last 5 financial years has been 9.32 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.
Ownership pattern
In its latest stock exchange filing dated 31 March 2017, Jindal Steel reported a promoter holding of 61.89 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.
At the same time, institutional holding in the Company stood at 19.53 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.