Jindal Steel and Power shares are up 80.54% in the last one year. During this period, the shares spiked from ₹329 apiece to the present level of ₹593.65. Encouragingly, projections from Kotak Institutional Equities, a domestic brokerage firm, indicate that this bullish momentum is expected to persist going forward.
The brokerage sees the next 12 months as a transformational period for JSP as various projects are lined up for commissioning. These initiatives are expected to enhance the company's capacity by 65% in two phases, while higher backward and forward integration over FY2024–26E would structurally lift its margin profile, it said.
JSP’s expansion projects totaling ₹240 billion, announced in May 2021, are set to commission gradually starting in 2QFY24E and aid earnings from 2HFY24E, said the brokerage. The expansion projects fall into three categories:
Capacity expansion: Brownfield expansions will add 3.3 Mtpa by 4QFY24E and another 3 Mtpa by 2QFY26E, increasing the total capacity to 15.9 Mtpa from the current 9.6 Mtpa.
Backward integration: Commissioning of a 12 Mtpa pellet plant, a slurry pipeline, and four coal mines will commence from 2QFY24E, strengthening the integrated production chain and supporting future cost efficiencies.
Forward integration: The hot strip mill, thin slab caster, and rail mill are set to begin commissioning from 3QFY24E, contributing to downstream volumes and upgrading the product mix.
The brokerage pointed out that the company's ongoing expansion projects would fill various existing gaps in the integrated production chain, improve forward-backwards integration and potentially elevate margins by ₹4,000 per tonne at full capacity.
Additionally, the brokerage believes that JSP has the potential to elevate its product profile in line with its peers, such as JSW Steel and Tata Steel, which could lead to further downstream capital expenditure.
The company's projected capex for FY2024–26E is estimated to be around ₹270 billion, which is higher than the initially announced plan. Despite this increase in growth capex, JSP is expected to maintain a net debt/EBITDA ratio of less than 1X over FY2024–26E, with a peak of 0.8X in FY2025E, it highlighted.
Comparing Jindal Steel and Power to other listed integrated steel companies across ten operational and financial parameters, Kotak Institutional Equities found JSP best-placed among its peers. Consequently, the brokerage has upgrade its rating to ‘buy’ from ‘reduce’ and raised its target price for the stock to ₹740 apiece from ₹580 previously.
While another brokerage firm, Centrum Broking, also kept its 'buy' tag on the stock with a target price of ₹764 apiece.
For the March quarter, the company reported a 70% YoY drop in its consolidated net profit to ₹465.66 crore. It posted a net profit of ₹2,207 crore in the same period of last year and ₹518 crore in Q3 FY23.
The consolidated revenue from operations witnessed a marginal 4.51% YoY drop to ₹13,692 crore. Its operating profit in Q4 fell by 28.76% YoY to ₹2,187 crore, compared to ₹3,070 crore registered in the same quarter of the previous fiscal year.
The company's profitability was impacted by the high operating expenses. In Q4 FY23, the company experienced a significant increase in opex, amounting to ₹11,505 crore compared to ₹10,075 crore in Q3 FY23.
23 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.
