Analyst Corner — Jindal Stainless: Maintain ‘buy’ with TP of Rs 230

JSL highlighted the potential flexibility it enjoys in manufacturing planning.

On regular observe: We hosted the administration of Jindal Stainless (JSL). Management clarified the company’s product-level technique, underlining the resurgence in demand that the 400 sequence sees in India. Expansion from 1.9mtpa to 2.9mtpa stays on observe. Existing capability will result in 15-20% quantity progress in FY22. Management pointed at its continued give attention to deleveraging and guided for begin of dividend payout as merger between JSL and Jindal Stainless (Hissar) (JSHL) concludes, doubtless within the close to time period. Maintain ‘buy’ with a goal value of Rs 230/share.

Flexibility in manufacturing plan: JSL highlighted the potential flexibility it enjoys in manufacturing planning. It can change the product profile in 30-45 days based mostly on demand. JSL at present has >120 merchandise in its portfolio. Management highlighted the 400 sequence because the one the place price benefit lies. There is hardly any import seen in 400 sequence in India whereas it enjoys strongest incremental demand (vis-à-vis 200/300 sequence). JSL stays among the many only a few corporations globally to make use of liquid ferrochrome, which provides to price benefit in manufacturing the 400 sequence.

On-time and in-budget completion of brownfield enlargement: Equipment ordering has been made to 2 giant suppliers from Europe with comparable design configurations. The suppliers have dedicated to the timeline and no giant civil or structural work is required at their finish. Post the continuing enlargement (1.9mtpa to 2.9mtpa), scope of additional brownfield enlargement appears restricted: Focus on Hissar stays on value-addition. Blade metal has 80% market share and JSL is the biggest provider for Gillette worldwide. Coin blanks are being provided to mints in India in addition to globally. Hissar plant covers an space of 300 acres with 0.8mtpa whereas Jajpur plant is unfold throughout 800 acres and had comparable capability until Nov’19. JSL invested Rs400million in Jajpur to de-bottleneck it to 1.1mtpa.

Competition state of affairs and standing of Chromeni steels: JSL administration didn’t sound involved about it as 35-40% of home chrome steel demand is at present being met by imports. Initial plan for an built-in chrome steel plant (by Chromeni) has not come to fruition as but, and should take some extra time if it tries to pursue it. Large mines of nickel initially allowed Chromeni to supply the metallic at aggressive costs, which now appears to have stopped.

JSL trying towards a prudent margin-driven product combine; expects increased 400 sequence demand in India: 200/300 sequence beforehand contributed > 50% of Indian chrome steel demand. The 400 sequence caters to largely newer purposes as in railway and auto sectors. JSL appears to develop the Indian market for 400 sequence, given the brand new consumption sample (railway coaches’ outer our bodies, auto exhaust techniques, highway over bridges in railways). Valuations and key dangers: We keep ‘buy’ on Jindal Stainless (JSL) with a goal value of Rs 230/share. We worth it at 1.8x FY24E P/B, with an implied EV/EBITDA of 5x.

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