Jindal Stainless: Well set with capacity and balance sheet

5 Dec 2023 , 10:09 AM

Recommendation: Buy; Target price: Rs 594

 

Post the merger of JSHL and acquisition of 74% stake in JUSL, Jindal Stainless is the largest pure-play stainless steel company in India, with a capacity of 2.9mtpa. This will support 16.5% volume Cagr over FY23-26 amid a healthy demand outlook. Faster Ebitda Cagr at 25% is led by the consolidation of JUSL (3.2mtpa HSM) with SA margins being aided by backward integration into nickel mining. Deleveraging should resume from FY25 to drive a netcash position by FY26; which provides comfort on planned expansion capex, starting FY25. Analysts of IIFL Capital Services initiate with a BUY rating for a TP of Rs594 (7x Dec’25 EV/Ebitda). 

Capacity in place to deliver 16.5% volume Cagr: 

Backed by an expanded SMS capacity of 2.9mtpa and rolling capacity of 3.2mtpa (JUSL), JSL is well-placed to deliver 16.5% volume Cagr over FY23-26. This would be aided by the increasing penetration of stainless steel across various end markets (Infra, Auto, Durables, and Industrial/Process Equipment) and gradual recovery of global demand from the current muted levels. With management highlighting the intent for further growth capex, growth should continue beyond FY26 as well. 

Cleaner structure with improving backward integration: 

Following the merger of JSHL with JSL and acquisition of JUSL (3.2mt HSM capacity), JSL now has a much cleaner structure providing investors the largest pure-play stainless steel player in India (5th largest globally ex China). The 49% Indonesian JV for backward integration into nickel improves margin stability as well. The recent acquisition of Rathi Steel is driving the foray into long products and should see ramp-up for the 162kt capacity over FY25-26. Combined, this should help drive Ebitda Cagr of 25% over FY23-26. 

Lean balance sheet lends comfort on growth ambitions: 

JSL has seen a sharp deleveraging over FY18-22, aided by healthy operations and strong market. FY24 has seen an increase due to the acquisition of JUSL and capex/investments into Indonesian JV. But, over FY25-26, higher utilisation, stable margins and low capex should drive JSL to a net-cash position. This provides strong comfort for the planned expansion capex for volume growth beyond FY26.