scorecardresearchJindal Stainless more than doubles investor wealth in 6 months; what next for the stock?

Jindal Stainless more than doubles investor wealth in 6 months; what next for the stock?

Updated: 09 Jan 2023, 12:06 PM IST
TL;DR.
Brokerage firm Phillip Capital, in its latest equity research report, initiated coverage on the stock with a ‘buy’ rating and a target price of 300 per share, which reflects a potential upside of 25.52% from the stock's previous closing price.
SS has found its place in many new applications such as ART (automobiles, railways, and transport) and ABC (architectural, building, and construction).

SS has found its place in many new applications such as ART (automobiles, railways, and transport) and ABC (architectural, building, and construction).

Shares of Jindal Stainless have delivered massive returns of 110.55 percent in the last six months, climbing from 113.65 apiece to the current position of 239.30.

In December, the stock produced a staggering return of 37.68 percent. Recently on January 2, it reached an all-time high of 255. 

At the current level, the stock is trading 155.44 percent higher than its 52-week low of 95.

Jindal Stainless is a small-cap stock with a market capitalisation of 12,769.5 crore. The company is one of the leading manufacturers of stainless steel (SS) in India, with integrated melting products with a capacity of 1.1 million tonnes per annum (mtpa).

The company is also merging with its sister concern, Jindal Stainless (Hisar) Ltd, which operates an 800 kt capacity. Therefore, the combined capacity at present has a 1.9 mtpa production capability.

On December 5, Jindal Stainless partnered with ReNew Power to develop its proposed 300 MW hybrid energy project. The project will generate 700 million units of green energy annually through a mix of solar and wind technologies, the company said in a statement.

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Stock price chart of Jindal Stainless.

Brokerage firm Phillip Capital, in its latest equity research report, initiated coverage on the stock with a "buy" rating and a target price of 300 per share, which reflects a potential upside of 25.36 percent from the stock's previous closing price.

"Stainless Steel (SS) is the fastest-growing value-added metal globally, aided by new-age applications, increasing awareness, and strong replacement demand. SS demand has meaningfully outperformed other metals over the last decade (+5.7%), with aluminium being the closest second at 3.8%."

"We expect that in the near future as well, SS will continue to outperform other metals due to its diversified usage in many critical applications, its better tensile strength, and the discovery of new applications. This bodes well for JSL’s long-term growth plans," said the brokerage.

Furthermore, Phillip Capital pointed out India's low per capita consumption aids faster market growth. At current levels, India’s per capita SS (stainless steel) consumption stands at 2.5/kg, which is among the lowest in the world when compared to the global average of 6.6 kg, despite the country being one of the fastest-growing economies.

One of the major reasons for this low consumption is that, until a few years ago, most of the demand came from utensils and consumer products, while new-age applications lagged far behind.

However, in the last decade, SS has found its place in many new applications such as ART (automobiles, railways, and transport) and ABC (architectural, building, and construction), which the brokerage expects will be its main drivers of incremental growth ahead.

Meanwhile, the company is in the process of expanding its steel melting capacity from 1.1 mtpa to 2.1 mtpa by Q4FY23 at its Odisha site. This is a 91 percent increase at JSL levels and a 53 percent increase at the group level, ensuring a volume CAGR of 15-20 percent for the next two to three years, the brokerage added.

JSL, along with its sister concern, JHSL, currently has about 50 percent of the market share, and given the fact that it has increased its capacities, which allows faster than market growth, “we continue to feel that the company would be able to improve its market standing further”, Phillip Capital said.

JSL has been consistently reducing its debt for the last 4–5 years and managed to come out of the CDR (corporate debt restructuring) scheme in FY20–21.

The company is expected to report a volume CAGR of 14 percent over FY22-FY25e. Higher volumes, economies of scale, synergy benefits and improved value addition would drive the cash flows, which would bring down the debt meaningfully over the next couple of years, it stated.

At CMP, the stock trades at 4.5x/3.2x FY24/FY25 EV/EBITDA based on the consolidated financials of the merged entity (JSL + JHSL + JUSL), said the brokerage. 

Eight analysts polled by MintGenie on average have a 'buy' call on the stock.

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

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First Published: 09 Jan 2023, 12:06 PM IST