ValuePickr Forum

Jindal Steel And Power - Can the turnaround happen

I was just going through the numbers of Jindal Steel And Power and found something interesting which can addback to the market capitalization of the company in a very direct and big way.

The company reported peak EBIDTA of 2277 crores in Jun 2018 with a margin of 24% and its profit numbers have been dwindling since.
However post that quarter the comapny has ramped up its production at Angul Plant out of which more than 50% remains still unutilized. This will be running in full swing very soon.

Now lets see how this will work out:
With yearly EBIDTA of 8000 crores at suppressed prices and 50% production the company can come to an EBIDTA of around 12-15k crores in the coming years.
On top of that the debt reduction plan of the company is at play and the company is committed to reduce the same by another 10k crore in the coming future.

Assuming a 6 times EV/EBIDTA the projected price of the company is as follows

EBIDTA 12000 CR
EV 12000*6 = 72000 cr
LESS DEBT 22000 CR (POST REDUCTION)
EQUITY VALUE / MARKCET CAP - 60000 CR.
CURRENT MARKET CAP - 15000 CR.

HOW MUCH IS THE UPSIDE POTENTIAL LIKELY, would love to hear from our friends.

RISKS:

  1. The old coalgate scam cases are still on, if something against the business comes up can be harmful - however the current government has already completed most of the auctions and seemed to be moving on with this.
  2. The debt reduction the company has promised should happen on the ground for such an increase.
  3. The steel proces are a major driver , however the cycle looks to be lying at a low point now, but steel demand from China is still a major concern for further growth in prices as well as volumes.