The Expansion In Angul And Utkal Mining Will Drive Impressive Margin Growth And Enhanced Profitability

Key Takeaways

• Expansion at Angul, including a new blast furnace, aims to boost production capacity, potentially driving higher revenue and operational efficiency.
  
• Strategic mining activities and infrastructure projects aim to reduce reliance on external resources, lowering costs and improving profit margins.
  
• Increased competition, operational risks, and input cost fluctuations might pressure revenue and earnings, while expansion-related debt could strain financial stability.

Catalysts

Operates in the steel, mining, and infrastructure sectors in India and internationally.

• The expansion project at Angul is progressing well and expected to be delivered on time, which may significantly increase production capacity and contribute to higher future revenue growth.
  
• The anticipated reduction in coking coal prices by $20-$25 per tonne in Q3 FY '25 could lower operational costs, potentially improving net margins and overall earnings.
  
• The commissioning of the Angul Blast Furnace is expected to ramp up production further, enhancing volume-based revenue as well as operational efficiency.
  
• The start of coal mining at Utkal B1 in Q4 FY '25 and potential increases in production from other mines can reduce reliance on external coal, lowering costs and boosting net margins.
  
• The completion of the slurry pipeline by Q4 FY '25 is expected to reduce logistics costs and improve margin stability, thereby enhancing overall profitability.

Jindal Steel & Power Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jindal Steel & Power's revenue will grow by 19.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.1% today to 15.0% in 3 years time.
• Analysts expect earnings to reach ₹127.4 billion (and earnings per share of ₹108.23) by about November 2027, up from ₹50.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹87.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.0x on those 2027 earnings, down from 17.4x today. This future PE is lower than the current PE for the IN Metals and Mining industry at 19.1x.
• Analysts expect the number of shares outstanding to grow by 4.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.83%, as per the Simply Wall St company report.

Jindal Steel & Power Future Earnings Per Share Growth

Risks

• The surge in steel imports and declining exports indicate increased competition and pressure on domestic steel prices, which could negatively impact revenue and earnings.
  
• The decrease in sales volumes due to the shutdown of the Raigarh facility, coupled with reduced net revenue, suggests operational risks that might affect profit margins.
  
• The increase in net debt, driven by expansion-related payouts, could strain financial stability and impact net margins if not managed well.
  
• Delays or challenges in project execution, such as potential delays in the commissioning of new plants or capacity expansions, could affect expected revenue streams and earnings.
  
• The fluctuation in iron ore and coking coal prices, if not in the company’s favor, could lead to increased input costs and reduce net margins.

Valuation

• The analysts have a consensus price target of ₹1070.0 for Jindal Steel & Power based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1300.0, and the most bearish reporting a price target of just ₹500.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹848.1 billion, earnings will come to ₹127.4 billion, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 14.8%.
  
• Given the current share price of ₹865.4, the analyst's price target of ₹1070.0 is 19.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.