Jindal Steel And Power

With order intake going up, Thermax’s FY11 and FY12 sales and net profit estimates are upgraded with FY11 EPS and FY12 EPS pegged at Rs 31.6 and Rs 38.4, respectively
Macquarie commodities team raised forecasts of world average steel export prices by 19 per cent, 4 per cent and 2 per cent for FY10, FY11 and FY12, respectively to $563/tonne, $598/tonne and $617/tonne.

Given its unique technology and flexible product mix, JSPL's steel business has consistently clocked 40 per cent Ebidta margins. JSPL has already provided Rs 590 crore for the pending coking coal quantity last year, which none of its peers have done.

The additional 1,350MW of power capacity, of which 70–90 per cent was available for surplus sale, would boost margins further. JSPL's merchant power subsidiary recorded a realisation of Rs 6.2/KWH in Q1.

The brokerage is building in cumulative capex of $2.8 billion for FY10 and FY11, but the debt/equity still remains at just 0.8x for both the fiscal years.It is believed that its low cost operations, first mover advantage in merchant power, sizable resource base and strong growth pipeline make it a compelling investment idea.

Given the high earnings upgrade potential, valuations remain undemanding at 13x FY11E earnings. Maintain outperform.