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Performs well…

About the stock: Jindal Stainless (JSL) is among the leading stainless steel manufacturing companies in the world and 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

Q4FY22 Results: Jindal Stainless (JSL) reported a healthy Q4FY22 performance

* During Q4FY22, JSL reported a consolidated topline of | 6564 crore, up 68% YoY and 16% QoQ, higher than our estimate of | 6056 crore

* Consolidated EBITDA for the quarter was at | 842 crore, up 55% YoY and 6% QoQ, higher than our estimate of | 804 crore

* During the quarter, on a consolidated basis, JSL reported a net tax credit of ~| 31 crore compared to our estimate of tax expense of ~| 219 crore. Hence, ensuing consolidated PAT for Q4FY22 was at | 750 crore, up 156% YoY and 70% QoQ, higher than our estimate of | 453 crore

What should investors do? Jindal Stainless’ share price has given a return of ~84% in last 12 months (from ~| 90 in May 2021 to ~| 166 in May 2022).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value JSL at | 225, based on a merged entity basis

Key triggers for future price performance:

* JSL is augmenting is stainless steel melt capacity from 1.1 million tonnes per annum (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 cost is ~| 2150 crore

* Merger Update - Shareholders and creditors of JSL and JSHL approved the “Scheme of Arrangement” for the merger between two companies on April 24, 2022. The companies will now file the second motion petition with NCLT. The companies now expect other relevant processes to be completed in due time, in the next six to seven 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 | 439

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