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On strong footing…

About the stock: Jindal Stainless (JSL) is 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 (MTPA).

* JSL has a 1.1 MTPA integrated facility with backward integration (ferro chrome and captive power plant).

Key Highlights of plant visit

* JSL is planning to double the melting capacity in Jajpur, Odisha through the brownfield expansion route. Along-with the melting capacity, the company also plans to increase its downstream capacity by increasing the capacity of hot rolled annealed pickled (HRAP) and cold rolled annealed pickled (CRAP). Furthermore, JSL is also strengthening backward integration through ferro chrome augmentation.

* For JSL, the estimated total capex for the above-mentioned plans is ~| 2150 crore, which is less than one-third of the greenfield capex cost.

What should investors do?

Jindal Stainless’ share price has grown by ~4.3x over the last 20 months (from ~| 39 in February 2020 to ~| 168 levels in October 2021).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value JSL at | 200, based on a merged entity basis

Key triggers for future price performance:

* JSL is augmenting its stainless steel melt capacity from 1.1 MTPA to 2.1 MTPA and also enhancing downstream capacity with 1.6x expansion of hot rolled annealed pickled (HRAP) from 0.8 MTPA to 1.25 MTPA and 1.7x expansion of cold rolled annealed pickled (CRAP) from 0.45 MTPA to 0.75 MTPA. It is also expanding backward integration with 1.4x expansion of ferro chrome from 0.25 MTPA to 0.35 MTPA

* The estimated total growth capex for JSL is ~| 2150 crore wherein melting capex is | 530 crore (to be completed by Q3FY23), downstream enhancement capex is | 1250 crore (to be completed by Q4FY23) and backward integration capex is | 315 crore (to be completed by Q3FY24). Quality lab and other balancing capex is | 55 crore

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

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

* BUY with a target price of | 390

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