Buy JSPL for Price Target Of Rs. 640 - Stock Recommendation

Jindal Steel & Power Ltd. is recommended to buy with a price target of Rs 640 as against the current market price (CMP) of Rs 486.80 reported on 03-Jan 2012.

Currently JSPL has operational capacity of 1,000MW at Tamnar, Chattisgarh, which is one of the largest merchant capacities in India. In the near term the company is likely to register a healthy profit from the power segment as the cost of power generation remains broadly unchanged, given the company has a captive coal mine.

JSPL plans to increase its steel capacity 4 x over the next four years and power capacity 10x in 10 years. JSPL has one of the best iron ore and coal resources in India, with assets spread over various mineral-rich countries. Both its steel and merchant power businesses are insulated from input prices.

The stock has underperformed over the last 18-20 months, due to anticipation of slower earnings growth over FY11-13. We expect the stock to get re-rated again, as the visibility of projects and earnings improves over the next 12 months.

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