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Good performance; merger process progressing well

Jindal Stainless’ (JSL) Q4FY21 performance was better than our estimates on all fronts. Topline of consolidated operations for Q4FY21 was at | 3914 crore (up 26% YoY, 9% QoQ), higher than our estimate of | 3606 crore. For Q4FY21, JSL reported consolidated EBITDA of | 542 crore, up 145% YoY, higher than our estimate of | 478 crore. Ensuing consolidated PAT of JSL for Q4FY21 was at | 293 crore (higher than our estimate of | 181 crore). In terms of key development, the merger process of Jindal Stainless Hisar (JSHL) into JSL is progressing well and is expected to be completed in H2FY22. For Q4FY21, JSHL reported an operationally steady set of numbers wherein its consolidated EBITDA and PAT came in higher than our estimates. JSHL’s consolidated topline for Q4FY21 was at | 3103 crore, up 38% YoY (our estimate: | 3202 crore). JSHL reported consolidated EBITDA of | 406 crore, up 123% YoY, higher than our estimate of | 392 crore. Ensuing consolidated PAT of JSHL for Q4FY21 was at | 350 crore, up 233% YoY (higher than our estimate of | 276 crore).

Healthy domestic demand augurs well….

Strong recovery in domestic stainless steel demand aided JSL’s Q4FY21 performance. Quarterly performance was buoyed by segments like auto and a healthy revival in demand from the pipe and tube segment, along with Railways and allied infrastructure, including the metro segment. With further push on indigenous production and expected economic recovery, healthy demand is likely to be generated in future as well. Demand from segments like elevators, lifts and hollowware also remained strong and is likely to continue. With respect to JSHL, sales volume of specialty products division (SPD), a key differentiator and focus area for the company, grew 8% YoY. JSHL is in the process of commissioning new facilities to further enhance SPD production that is expected to further consolidate its position in the high-end special products market.

Upward revise EBITDA/tonne guidance to | 15000-17000/t range

For combined entity (JSL + JSHL), FY22 volume guidance is 1.7 million tonne (MT) (1.4 MT in FY21) with EBITDA/tonne guidance range of | 15000- 17000/tonne (upward revised from | 14000-16000/tonne range earlier).

Valuation & Outlook

The merger process of JSHL into JSL is progressing well and is expected to be completed in H2FY22. Hence, we value JSL on a merged entity basis and arrive at a target price for JSHL based on the announced swap ratio. We arrive at a target price of | 125 for JSL (earlier | 90), maintaining our BUY recommendation on the stock. Subsequently, as per the announced swap ratio, we arrive at a target price of | 244 for JSHL (earlier target price | 170), maintaining our BUY recommendation on the stock.

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