When one of the promoters who has access to the detailed working of the company and expertise of many investment professionals all over the world is selling( aion the seller is a joint venture of Apollo a global pe firm and icici ventures).
What do they know that the buyers don’t?
Disc: participated in ofs simply because I expect very strong results this quarter. And if the commodity cycle stays at a level that it was in q4 for another six months, jsw ispat will be able to pay down lot of debt
The terms of preference shares are : convertible any time at rupees 10 within twenty years of issue.
After this sale of 21 percent promoter shareholding will convert to public shareholding taking total public shareholding to 25 + 21 = 46 percent
But assuming 54 crores preference shares are yet to come in , in addition to the 46 crores already issued, on full conversion of preference share the current 46 percent public shareholding will be 23 percent of the diluted base post preference share conversion
This means that aion will sell again since it is a fund and it needs to pay money to its investors but jsw may not.
So supply overhang will exist.
Expect a series of lower circuits over the next few days till it gets closer to the issue price of 35 plus.
The only prospect of a return is if the commodity cycle stays stronger for longer and the EV increases due to paying down of debt
The price behavior played out as expected. The price hit lower circuit every single day from 51 to 38.05 which was the level at which retail investors were allocated in the recent ofs.
Today is the first day it has been in the green or atleast not hit lower circuit
The quarterly results now become the determining factor for any strong directional movement.
Today the stock has witnessed highest ever volumes of 4 Cr. and its 100% delivery based as the stock is in Trade to Trade segment. If the stock is terribly over-priced at Rs. 35 as per the Capitalmind research (posted here) then who took 4Cr. shares for delivery today and what is the rationale behind it? Personally I don’t like the stocks which hit back to back LC/UCs but for now decided keep a watch on this one after seeing the volume.
Disclosure: Invested and biased. Not a SEBI registered advisor. Views are personal and not a buy/sell recommendation. Please do your own due diligence before investing.
Trying to run some numbers for jsw ispat.
Need some help with reference values
sale price of pellets and rolled products in INR / TONNE
cost of production or approx ebitda / tonne values.
Am ok to get reference values with peer group companies. What companies would be a good proxy to jsw ispat.
For eg read somewhere that godawari power is expected to have ebidta of 3500 per tonne on pellets in this quarter but they have captive iron ore so their margins are going to be stronger than others.
Hi Siva,
Interesting viewpoint.
I also felt that moving towards more value added products and better management expertise and experience of JSW with a positive steel prices continuing even in Q1 FY22 (which means that pricing for Q2 will also be excellent), it is likely that 650 cr EBITDA is possible (lower than your estimate considering issues wrt change management and Covid impact in Q1)
At EV = 6500 (EV/EBITDA=10), 4000 crore market cap is possible (75-80 Rs target price)
My average buy is 47 Rs for 5000 shares
But can sense operator play and concerned if JSW management, before merging into JSW group, focuses on creating value for JSWISPL and not just consolidating purchase for JSW group.
Your views?
PS - I am neither a market expert nor an experienced analyst. Limited knowledge of evaluating stocks and learning new things everyday. Just a normal working class person
Hi Sajeet,
Thanks for your view. The stock definitely has potential. I made a mistake during my initial forecast - 100% dilution on CCPS, so whatever EPS we forecast on a diluted basis will be half of that. So my initial thesis of mulribagger dropped to 150-200 Rs level target on a fully diluted basis. Now promoter behavior is mostly self fulfilling here. I see they (not just Jindals) try to squeeze out minorities. This includes banks too. Now with Aion, they definitely are exiting early. Some say they are in profit but I doubt that this exit was profitable given they were invested for 3 years.
If we recollect the deal, JSW+Aion paid 2800 Cr for the company. In return they got 75% of the company. That is about 36 Crore shares. With dilution, they have roughly 75 Cr shares.
Now crexient steel itself is a JV between JSW and Aion, so both parties hold 50% each. Other than this, Aion holds 21% (which was the OFS).
If we work out, Aion still holds 25% via Crexient and 2x of that on dilution. For such a large stake they would have paid quite a lot of the 2800 Cr. . Some reports say they paid only 550 Cr that’s not possible.
Overall I think the company has potential but the promoters have no incentive to reward minorities except for share offloading like OFS. .
One major positive is they appointed a new CEO with an excellent profile.
Disclosure exited at cost at 38 Rs…
I don’t think jsw and aion paid 2800 crore. Of this 2800cr large part of it was debt which was refinanced and used to pay off the earlier bankers who took a haircut.
As far as I remember the consortium on total paid approx. 800 crore including the ccps for the equity.
More details are In another valuepickr thread
