We visited Jindal Steel and Power (JSP)’s Angul, Raigarh and Tamnar facilities. Crude steel production at Angul is gathering pace. The newly commissioned blast oxygen furnace (BOF) is ramping up well. The BOF is operating at 45 minutes per batch, which will be gradually optimised to 35-40 minutes per batch. It has already touched a peak of 27 heats per day (against capacity of 36-41 at optimised rate). Crude steel production was 165kt in January, and is likely to increase to 280kt in February, with a target of 400ktpm by May, 2018. By this time, the second 2.5mtpa billet caster would have been commissioned. This would take told casting capacity from 3.7mtpa to 6.2mtpa and pave the way for full ramp-up of steel-making capacity. Bottlenecks will shift to rolling capacity at Angul. However, excess semis will be rolled at Patratu site in Jharkhand.
Raigarh – production rate improving
Crude steel production was ~280kt in January. A similar production is expected in February, despite fewer days. A total production of 810kt is expected in Q4FY18. Rail production is about 200kt against nameplate capacity of 600kt. DFCC and Iran are key orders. JSP is expecting approval from the Indian Railways. If successful, another 140kt of order is possible. The outlook for plate business is also improving with increasing activity in gas pipeline orders in India.
Tamnar – very competitive fuel cost under PPAs
The 2x250MW EUP-1 in merchant and 2x600MW in EUP-2 in PPA/merchant was operating at full capacity (50% utilisation on the 3,400MW capacity). In EUP-2, it was running 900MW under long-term PPAs, while the remaining was sold in merchant market. The fuel cost under PPAs is very competitive at `1.6-1.7/kWh. Coal availability under FSA is good. E-auction coal availability remains an issue, but is gradually improving. Prices under e-auction are high, as Coal India has stopped special e-auction for power sector. Coal supply quality under FSA has improved and grade slippage is no longer an issue.
Volume growth at inflection
Looking at the progress at Angul and Raigarh, we believe our volume estimates of 1.2mt for Q4FY18 (v/s 970kt in Q3) and 5.8mt (v/s 3.8mt in FY18) for FY19 appear comfortable. Steel production is at inflection – we expect 29% CAGR to 6.4mt over FY18-20. Strong long product prices in India, operating leverage, and timely volume growth augur well for earnings. Nearly 25% of raw material cost is insulated from input price risk due to captive iron ore mines and coal linkage. We remain positive on stock – Buy with a target price of `361.
—Motilal Oswal
