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Capex plans going on as per schedule…

About the stock:

Jindal Stainless (Hisar) (JSHL) is one of the leading players in the Indian stainless steel market.

* JSHL is the largest specialty stainless steel producer in India with a diversified value-added product portfolio

* JSHL operates an integrated stainless steel plant at Hisar, Haryana. JSHL has a total melting capacity of 0.8 million tonnes per annum (MTPA)

Key Highlights-

* Post the levy of export duty, for the combined entity (JSL+JSHL), the company has given EBITDA/tonne guidance of | 18000-20000/tonne. (during FY22, EBITDA/tonne for the combined entity was at | 27609/tonne). Before the levy of export duty, for the combined entity (JSL+JSHL) export volume run-rate was ~25000-30000 tonnes per month. Post the duty, the export volume run-rate has declined to ~15000-16000 tonnes per month

* The total capex for the combined entity for capacity expansion is | 2600 crore. Of this ~| 1300 crore has already been incurred till March 2022. Of the balance capex, ~| 900-1100 crore is expected to be incurred in FY23E and the balance | 200-400 crore is expected to be incurred in FY24E

What should investors do? JSHL’s share price has given a return of ~179% over the last two years (from ~| 75 in July 2020 to ~| 209 levels in July 2022).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value JSHL at | 244, based on merger ratio.

Key triggers for future price performance:

* With respect to the precision strip division, JSHL has recently commissioned the first phase of expansion wherein the precision strip capacity has been expanded from 22000 tonnes per annum (TPA) to 48000 TPA. Going forward, after the second phase, precision strip capacity would be further expanded to 60000 TPA (from 48000 TPA) which would be completed by Q4FY23. The total capex for both phases is | 250 crore

* JSHL is also expanding blade steel capacity from current capacity of 14000 TPA to 24000 TPA in two phases at a total capex of | 200 crore for both phases. After the first phase, the capacity would be expanded to 20000 TPA and is likely to be completed by Q2FY23 while post the second phase capacity would be expanded to 24000 TPA and be completed by Q2FY24

Alternate Stock Idea: Apart from JSHL, we also like Jindal Stainless.

* JSL operates an integrated stainless steel plant at Jajpur, Odisha. The complex has a total stainless steel capacity of 1.1 MTPA ? BUY with a target price of | 125

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