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Steady operational performance…

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)

Q2FY23 Results: Jindal Stainless (Hisar) reported a steady performance for Q2FY23 wherein standalone sales volume, standalone EBITDA and consolidated EBITDA came in higher than our estimate.

* For the quarter, Jindal Stainless (Hisar) standalone operations reported sales volume of 183421 tonnes, higher than our estimate of 172500 tonnes. Standalone operations EBITDA/tonne was at | 16085/tonne, higher than our estimate of | 15500/tonne. Hence, ensuing standalone EBITDA for the quarter was at | 295 crore, higher than our estimate of | 267 crore

* Consolidated topline for the quarter was at | 3926 crore, up 5%, 14% QoQ, in line with our estimate of | 3924 crore. For Q2FY23, JSHL reported consolidated EBITDA of | 323 crore, higher than our estimate of | 287 crore. During the quarter, share of net profit from associates (equity method) was at | 52 crore (down 57% YoY, 50% QoQ), lower than our estimate of | 100 crore. Hence, ensuing consolidated PAT for the quarter was at | 253 crore (our estimate of | 262 crore)

What should investors do? JSHL’s share price has given a return of ~204% over the last two years (from ~| 98 in November 2020 to ~| 298 in November 2022).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value JSHL at | 351, based on merger ratio.

Key triggers for future price performance:

* Going forward, for JSHL standalone operations, we model EBITDA/tonne of | 18000/tonne each for both FY23E and FY24E

* For FY23E, the company has now guided that sales volumes for the combined entity (JSL+JSHL) are expected to be flattish YoY compared to ~5-10% sales volume decline expected earlier

* Merger Update: The next date of hearing is November 11, 2022. The merger process is expected to be completed within the current financial year

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

* 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 | 180

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