Jindal Steel shares up 49% this year, analysts still see further upside; Here's why

Shares of Jindal Steel & Power rose about three percent to hit their 10-year high of ₹577.70 in intraday trade on BSE on April 11.

The stock has been witnessing mouth-watering gains this year as the stock has jumped 49 percent on BSE as of April 8 closing against a mere 2 percent gain in the equity benchmark Sensex.

But the stock's bull run may not end soon as many analysts and brokerages believe it can rise even further from the current levels.

Brokerage firm Kotak Securities has maintained a 'buy' call on the stock but raised the target price to ₹700 from ₹565 earlier, implying a 24 percent upside in the stock from the close of ₹563.10 on April 8.

Can the stock gain?

As highlighted by the brokerage firm Kotak, Jindal Steel has secured four thermal coal blocks in the recent auctions,

which would make it self-sufficient over the next two years. The coal blocks, with 15 mtpa capacity, could save nearly ₹1,500/ton on full ramp-up.

"We estimate an NPV (net present value) of ₹104 per share and add 50 percent in our SoTP factoring execution risks. Jindal Steel is on track to increase its steel capacity by 85 percent by FY2025E with a net debt-free balance sheet.

Strong growth visibility, a robust balance sheet and increasing backward integration should drive further re-rating," said Kotak Securities.

While the recent update is a key positive, the stock is also reaping the benefits of a strong demand scenario. There has been a shortage of steel after the coronavirus pandemic which shot up the steel prices due to supply chain disruptions.

This disruption has been further exacerbated by Ukraine War and this will ensure that steel prices are going to stay elevated in the medium term, thus improving the profitability of steel companies.

Santosh Meena, Head of Research, Swastika Investmart pointed out domestic steel companies are well-positioned to benefit from multi-year high prices due to structural advantages, as they operate at the lower end of the global cost curve due to lower labor and iron ore costs compared to other countries.

China is on a serious path of decarbonization and focusing on reducing steel production and exports, providing a good impetus to participate in the rising global export opportunity to domestic companies, Meena underscored.

Meena also added that Indian steel demand is poised to grow due to the revival of the infrastructure, construction and manufacturing sector, thus leading to a new economic and commodity growth cycle for India.

"Jindal Steel & Power can be a good stock to ride the steel commodity bull run. There is good growth visibility, the company has the lowest net debt to equity ratio in the industry, backward integration and capacity expansion make this company a good buy at the current market price," said Meena.

Technicals

The technical indicators are also showing the stock is poised for further gains.

As per Meena, the stock of Jindal Steel is in strong bullish momentum and it is continuing this momentum followed by a breakout of the bullish flag formation that may lead the stock to move towards ₹750-770 levels in the next couple of months.

"However, ₹660 will be an intermediate hurdle. On the downside, ₹540 will act as an immediate and strong support level while the breakout level of ₹500 is a sacrosanct support mark," said Meena.

As per Vijay Dhanotiya, Lead - Technical Research, CapitalVia Global Research, the stock has been trading with positivity and is trading in an ascending channel.

"The momentum indicators like RSI and MACD are showing that the positive momentum is likely to continue in the market. We recommend a 'buy' on the stock above ₹575 with a target price of ₹640 and stop loss of ₹510," said Dhanotiya.

Market sentiment on the stock is ‘neutral’, according to a MintGenie poll and an average of 23 analysts has a ‘strong buy’ call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.