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The consolidated EBITDA stood at Rs12.3bn (CentrumE: Rs13.3bn) up 3.2% QoQ and consolidated EBITDA/t of Rs22,637 (CentrumE: Rs24,213/t). The export demand was muted otherwise margins could had ended higher than reported. CoP dropped by 4% QoQ primarily due to fall in nickel price by 8.5% QoQ. Standalone EBITDA/t was down 3.4% QoQ to Rs19,679/t (CentrumE: Rs19,997/t). At JUSL, it completed expansion of hot strip mill from 1.6mtpa to 3.2mtpa during the quarter. Consolidated net debt decline by Rs7.6bn to Rs45.5bn aided by cash release from lower working capital requirement. We estimate JDSL profitability to improve with EBITDA and PAT growing at 26%/35%CAGR over FY23-26E with RoE of 21% and net cash position by FY26 if further capex is not announced. Besides, at optimum CU in FY26, we estimate volume of 2.8mt (CAGR of 17% over FY23-26E). Factoring strong earning visibility along with net cash position in FY26, we raise EV/EBITDA multiple to 6.5x (earlier 5.5x) and rollover to mid-FY26E and arrive at target price of Rs519/sh (Earlier: Rs404/sh). Maintain ADD rating.

EBITDA/t shrinks by 3% QoQ due to lower realisation

During Q2, JDSL sold 544kt of stainless steel (SS), down 0.9% QoQ. JDSL exports stood at 13% (17% in Q1FY24) of volume due to muted demand in Europe and USA. Due to fall in nickel prices by 8.5% QoQ, average NSR was down 2.2% QoQ. Hence gross margin increased marginally from 29% to 29.7% QoQ in Q2FY24. But higher conversion cost partially offset rise in gross margins and resulted in margin decline by Rs696/t (3.4%) QoQ to Rs19,679/t. Management guided 2.2mt of sales volume in FY24 with upside risk if Europe economy bounce back in H2FY24. Further, guided EBTDA/t should be in range of Rs19,000-21,000/t.

Net Debt down Rs7.5bn QoQ

During the quarter, raw material prices fell sharply which indirectly reduced working capital requirement and cash released aided net debt reduction of Rs7.5bn QoQ. The consolidated (incl. JUSL) net debt as on Sept-end 2023 stood at Rs45.5bn. The Net Debt/EBITDA is also in comfortable range of 1x. Despite recent acquisitions of Rathi super steels for Rs2bn, 49% stake in Indonesia entity (PT Cosan) for ~Rs13bn and JUSL for Rs9.6bn and ongoing expansion capex, we estimate higher OCF will drive deleveraging and bring down Net Debt to Net cash position in FY26 if no further capex is announced. JUSL completed hot strip mill expansion from 1.6mtpa to 3.2mtpa during the quarter. During H1FY24, JDSL spent on capex stood at ~Rs20bn. Further, capex required is Rs1bn to operationalise Rathi super steels and cumulatively planned capex in Indonesia and in India cumulatively will spend Rs13bn in H2FY24.

Maintain ADD rating with TP of Rs519

Jindal stainless profitability is expected to remain solid amid strong domestic demand and improvement in exports as well. It intends to sell PTJSI (Indonesian unit) due to unsustainable business. We expect JDSL to clock consolidated EBITDA/t of Rs23,000- 24,000/t in FY24-26E and factor in 17% CAGR volume growth over FY23-26E. We believe, higher OCF of Rs50bn in FY26 (vs Rs31bn in FY23) and no major capex, will turn from net debt to cash surplus position. We recommend ADD with target price of Rs519

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