Timely capex enables to capture the growing market while maintaining Leadership with low cost

Over the next two years, JPFL would continue with the capacity expansion, programme started since FY09, both in BOPP (180,000 tpa currently to 312,000 tpa in FY13) as well as BOPET (127,000 tpa in FY10 to 217,000 tpa by FY13). This capex would be carried out in phased manner and is expected to be completed by FY13. The combined capex of INR 16bn is through mix of debt and internal accruals.

The timely capacity expansion would enable JPFL to consolidate its market leadership both in BOPET and BOPP business divisions and sustain growth for next two years. JPFL is also low cost producer (~10% lower costs compared to its peers) due to economies of scale, single plant location and low financial gearing. JPFL is the largest player in India and the sixth largest in the world for BOPET films. In the BOPP segment too, JPFL is the largest player in India. JPFL also has a strong presence in the high-value-add metallised market.

With higher capex and moderate realisation for next two years, JPFL is expected to capture the growth both on volume and price realisation parametres. As far as BOPET segment is concerned, JPFL is the largest player in India and the sixth largest in the world. In the BOPP segment too, JPFL is the largest player in India. Also, JPFL has a strong position in the high-value-add metallised market. Power Story to unfold over FY13

For FY10, JPFL has investments of INR 1.53bn in subsidiaries and affiliates. It proposes to invest additional INR 4.56bn in an 1800 megawatt (MW) pit-head coal-based power project in Angul district, Orissa. This project is executed through its group company, Jindal India Thermal Power Ltd (JITPL) with project cost of 91.21bn. The project is funded through Debt and equity (80:20). JPFL has already invested INR 1.08bn (INR 857Mn in FY09 and INR 225Mn in FY10) and remaining is expected to be invested over the next two years. The investment is in Jindal India Powertech Ltd., (JIPL) which is a holding company of JITPL. Eventually, JPFL would hold a majority stake of 63.75% in JITPL.

The project would run partly on captive coal mine and partly on linkage coal. The captive mine has reserves of 96.84 MT and has linkage is in place for 2.66MnT from Mahanadi Coalfields Ltd. Revenue being back ended in nature, we haven't factored the value of this investment. This provides additional margin of safety. The management intends to list this subsidiary eventually to unlock value for shareholders.

Edge over domestic peers in overseas market

JPFL has edge over its domestic peers in the overseas market owing to substantially lower burden of anti-dumping duty on its products both in the US market as well as in Europe region. Of the total revenue for FY11 and onwards, we expect JPFL to derive ~30% of its revenue from the overseas market. JPFL exports to about 40 countries worldwide.

Robust Business with sound Balance-sheet

Despite debt-funded capex for core business, investments in power projects through subsidiaries, and equity buybacks, we believe that JPFL capital structure remains healthy over the medium term, supported by improved profitability and healthy cash accruals.