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Healthy performance…

About the stock: Jindal Stainless (Hisar) (JSHL) is one of the leading players in the Indian stainless steel market with an installed capacity of 0.8 MTPA.

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

* JSHL is the world's largest producer of SS strips for razor blades and India's largest producer of coin blanks

Q2FY22 Results: JSHL reported a healthy performance in Q2FY22.

* During Q2FY22, JSHL reported a consolidated topline of | 3743 crore, up 63% YoY and 35% QoQ, higher than our estimate of | 3465 crore

* Consolidated EBITDA was at | 567 crore, up 95% YoY and 37% QoQ, higher than our estimate of | 475 crore. Consolidated PAT was at | 499 crore, up 196% YoY and 39% QoQ, higher than our estimate of | 374 crore

What should investors do?

JSHL’s share price has grown by ~3.5x over the last 12 months (from ~| 97 in October 2020 to ~| 339 levels in October 2021)

* We maintain our BUY rating on the stock

Target Price and Valuation: We value JSHL at | 488, 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 the 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

* For FY22, for merged entity, JSHL has upward revised its EBITDA/tonne guidance to ~| 24000-25000/tonne (from | 18000-20000/tonne earlier)

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

* JSL has a 1.1 million tonnes per annum (MTPA) integrated facility with backward integration (ferro chrome and captive power plant)

* BUY with a target price of | 250

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