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Steady operational performance

About the stock: Jindal Stainless (JSL) is among the leading stainless steel manufacturing companies in the world & India’s largest stainless steel manufacturer.

* JSL operates an integrated stainless steel plant at Jajpur, Odisha. The complex has a total stainless steel capacity of 1.1 million tonnes per annum

* The company has readily leveragable infrastructure for cost efficient brownfield expansion

Q1FY23 Results: JSL reported a steady operational performance for the quarter wherein consolidated EBITDA came in broadly in line with our estimate

* For the quarter, JSL’s standalone operations reported sales volume of 235530 tonnes (our estimate of 240000 tonnes). Standalone operations EBITDA/tonne came in at | 22216/tonne, marginally higher than our estimate of | 21000/tonne

* Consolidated topline for the quarter was at | 5474 crore, up 36% YoY but down 17% QoQ (our estimate | 5220 crore). For Q1FY23, JSL reported consolidated EBITDA of | 549 crore, down 9% YoY, 35% QoQ (our estimate of | 554 crore)

* During the quarter, on a consolidated basis, JSL reported effective tax rate of 23% compared to 33% in Q1FY23. Hence, due to lower-than-expected effective tax rate, JSL’s consolidated PAT came in higher than our estimate. JSL’s consolidated PAT for Q1FY23 was at | 329 crore, up 8% YoY but down 56% QoQ, higher than our estimate of | 275 crore

What should investors do: Jindal Stainless’ share price has given a return of ~211% in the last two years (from ~| 37 in August 2020 to ~| 115 in August 2022).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value JSL at | 135, based on merged entity basis.

Key triggers for future price performance:

* Going forward, for the JSL standalone operations, we model EBITDA/tonne of | 16500/tonne each for both FY23E and FY24E

* Merger Update: NCLT, while hearing the second motion application on July 13, 2022, has directed to issue notice(s) to the sectoral regulator(s). The next date of hearing is October 18, 2022. The merger process is expected to be completed in due time in the next four to five months

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

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

? BUY with a target price of | 263

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