Jindal Stainless (Hisar) Ltd

Buy - JSLHISAR

CMP (NSE) 10:04, 20 Sep

291.40 -5.8-1.95%

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Metals

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Reco. Price

222

Period

1-Year

Target Price

268

upside

21%

Stop Loss

0

Last updated on

27 Nov, 2017

Government measures curb stainless steel imports

Imposition of stringent import duties has reduced steel imports by 36% yoy and increased domestic production by 8.5% over FY16-17. Moreover, strong demand from industries like construction, automobiles and infrastructure would accelerate domestic steel production by a CAGR of 8.9% over FY17-21E (vs. CAGR of 5.7% over FY12-17E).

Enhanced product mix to aid margins

JSHL already manufactures specialized steel like High Nitrogen Steel (HNS) for the defense industry. The company plans to add more grades of specialized stainless steel to its product mix. Hence, JSHL’s operating margins are likely to expand by ~54bps over FY17-19E.

Outlook & Valuation

We estimate that consolidated revenue would register 8.4% CAGR over FY17-19E, driven by 4.5% CAGR in sales volumes. We value the standalone stainless steel business of JSHL at 7.0x FY19E EBITDA (vs. Jindal Stainless Ltd 6.5x and Kalyani Steels 4.6x). Subsidiaries of JSHL (Jindal Stainless Steelway Ltd and JSL Lifestyle Ltd) at 9.0x EBITDA, a ~29% premium to the standalone business. JSHL’s holding in Jindal Stainless Ltd is valued at 7.0x FY19E EBITDA, based on consensus estimates (with a 25% discount to JSHL’s 36.58% stake in Jindal Stainless Ltd). Based on SOTP approach, we arrive at a target price of Rs 268 and recommend a Buy on the stock.

Financial Summary

Consolidated Rs cr

FY16

FY17

FY18E

FY19E

Revenue

7,235

7,774

9,029

9,140

yoy Growth (%)

-11.7

7.5

16.1

1.2

EBITDA Margin (%)

11.9

12.6

12.4

13.2

PAT

36

291

315

398

P/E (x)

141.5

17.7

16.4

13.0

EV/EBITDA (x)

7.9

8.3

7.0

6.0

ROE (%)

6.3

38.7

30.0

28.3

ROCE (%)

24.4

13.1

13.0

14.0

Source: Company, IIFL Research

Company Background

Jindal Stainless (Hisar) Limited was founded by Mr. O.P. Jindal in 1970. The company produces stainless steel products for construction, automobiles, railways, consumer durables and defense industries among others.

  • JSHL operates a stainless steel plant with a capacity of 800,000 tonne per annum in Hisar, Haryana.
  • Jindal Lifestyle Ltd, a subsidiary (77.73% stake), that manufactures stainless steel kitchenware.
  • Another subsidiary, Jindal Stainless Steelway Ltd, (81.91% stake), operates JSHL’s service centre network and adds value to customers by offering Precision Slitting, Cut to Length, Blanking and Polishing services to customers.
  • JHSL also holds a 36.58% stake in Jindal Stainless Ltd, which manufactures steel and stainless steel products.

Exhibit 1: Peer comparison – Steel Products

FY 19E EBITDA

(in Rs Cr)

Enterprise Value

(in Rs Cr)

FY19 EV/EBITDA

(x)

Kalyani Steels

388

1,837

4.6

Jindal Stainless Ltd

1,665

10,890

6.5

JSW Steel

14,634

106,923

7.3

Source: Company, IIFL Research, Bloomberg Consensus

Exhibit 2: SOTP for JSHL

FY19 EBITDA

(in Rs Cr)

Target

EV/EBITDA (x)

Enterprise Value

(in Rs Cr)

Net Debt

(in Rs Cr)

Equity Value

(in Rs Cr)

Equity Value

(Rs / share)

Standalone

1,079

7.0

7,552

3,381

3,817

177

Subsidiaries

96

9.0

866

-27

893

38

Jindal Stainless

1,665

7.0

11,658

5,835

5,823

68

Total

2,790

19,721

9,188

10,533

267

Source: Company, IIFL Research

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