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Prabhudas Lilladher Report
Domestic steel stocks have been under pressure due to two times increase in coking coal prices, negative sentiments on Chinese demand and 50% fall in iron ore prices.
Strong steel prices and lower costs benefitted the Ferrous sector over last 18-months with record earnings and near 40% fall in debt levels. However, Jindal Steel and Power Ltd. was able to make the most with ramp-up of its Angul plant after a long wait as utilisation rate increased from average 70% to 90% plus.
Production till FY20 was impacted due to coal quality issues (for coal gasifier based direct reduced iron capacity) and weak financial condition resulting in delay of blast furnace integrated commissioning.
Led by high operating leverage and structurally better spreads, we expect JSPL's sustainable Ebitda/tonne's trajectory to expand by 20% to Rs 12,000 (Q2 FY22/FY22E: Rs 21,200/Rs 20,000) in FY23E over FY16-FY20 average.
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