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Performs well…

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)

* The company has readily leveragable infrastructure for cost efficient brownfield expansion (800+ acre of land)

Q2FY22 Results: Jindal Stainless (JSL) reported healthy performance for Q2FY22

* During Q2FY22, JSL reported a consolidated topline of | 5027 crore, up 52% YoY and 25% QoQ, higher than our estimate of |4375 crore

* Consolidated EBITDA was at | 748 crore, up 117% YoY and 24% QoQ, higher than our estimate of | 639 crore. Consolidated PAT was at | 412 crore, up 410% YoY and 35% QoQ, higher than our estimate of | 310 crore

What should investors do?

Jindal Stainless’ share price has grown by ~3.1x over the last 12 months (from ~| 62 in October 2020 to ~| 192 levels in October 2021).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value JSL at | 250, 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 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

* For FY22, for merged entity, it has upward revised its EBITDA/tonne guidance to ~| 24000-25000/tonne (from |18000-20000/tonne earlier)

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 | 488

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