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Healthy uptick in sales volumes both QoQ, YoY…

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

Q2FY23 Results: JSL reported a healthy uptick in sales volumes in Q2FY23. For the quarter, standalone sales volume was up 5% YoY, 15% QoQ. EBITDA of standalone operations came in higher than our estimate, aided by healthy sales volume.

* For the quarter, JSL’s standalone operations reported sales volume of 270360 tonnes, higher than our estimate of 257500 tonnes. EBITDA/tonne of standalone operations came in at | 15208/tonne, broadly in line with our estimate of | 15000/tonne. Hence, ensuing standalone EBITDA for the quarter was at | 411 crore, higher than our estimate of | 386 crore

* Consolidated topline for the quarter was at | 5605 crore, up 11%, 2% QoQ, (our estimate of | 5214 crore). For Q2FY23, JSL reported consolidated EBITDA of | 358 crore, down 52% YoY, 35% QoQ, (our estimate: | 411 crore). Consolidated EBITDA came in lower than our estimate on the back of EBITDA losses from subsidiaries. Ensuing consolidated PAT for the quarter was at | 152 crore

What should investors do? JSL’s share price has given a return of ~166% in the last two years (from ~| 58 in November 2020 to ~| 154 in November 2022).

* We maintain our BUY rating on the stock

Target Price & Valuation: We value JSL at | 180, based on a merged entity basis

Key triggers for future price performance:

* Going forward, for JSL 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 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 | 351

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