Buy Jain resources Ltd for the Target Rs 460 by Motilal Oswal Financial Services Ltd
West Asia crisis hurts scrap availability
* Jain Resource Recycling (JAINREC) reported an EBITDA growth of 22% YoY despite constrained scrap availability and elevated logistics costs. Revenue grew 76% YoY to INR27.2b (blended volume/realization flat/74%), led by a 2.5x YoY surge in the copper businesses.
* A key positive factor for the quarter was the sharp improvement in exanode copper’s EBITDA/MT, which surged 2.3x QoQ to INR32.3k, and lead’s EBITDA/MT, which also improved 24%/6% YoY/QoQ to INR18.7k. However, lead volumes were hurt by scrap shortages arising from the West Asian crisis and commissioning-related costs associated with the new anode plant. These factors resulted in a miss vs. our estimates.
* We expect value-added copper products to enhance profitability, with potential incremental EBITDA of ~INR25,000/MT at full utilization. An improving domestic scrap sourcing network, expected increase in raw material availability, and regulatory tailwinds are expected to be key growth drivers for the company.
* Factoring in lower-than-estimated 1QFY27 earnings, we reduce our FY27/ FY28 earnings estimates by 10%/9%. We reiterate our BUY rating on the stock with a TP of INR460 (premised on 25x FY28E EPS)
Healthy EBITDA growth, though volumes remain under pressure
* Consolidated revenue grew 76% YoY to INR27.2b (est. INR24.5b) in 1Q.
* EBITDA grew 22% YoY to INR1.1b (est. INR1.4b). EBITDA margin dipped ~180bp YoY to 4% (est. 5.7%) due to a gross margin contraction of 380bp YoY to 6.2%. Blended EBITDA/MT grew 21% YoY to INR22,340 in 1QFY27.
* Adj. PAT grew 21% YoY to INR696m (est. INR921m).
* Lead business revenue grew 10% YoY to INR7.9b in 1Q. Volumes stood at 32.2KMT (down 12% YoY), and EBITDA/MT was INR18,660 (+24% YoY).
* Copper business revenue grew 2.6x YoY to INR18.4b, volumes stood at 14.7KMT (up 73% YoY), and EBITDA/MT stood at INR31,027 (-19% YoY).
* Aluminum business revenue declined 20% YoY to INR714m. Volumes stood at 2.2KMT, down 38% YoY. EBITDA/MT grew 2.6x YoY to INR21,197
Valuation and view
* As a leading player in India’s rapidly growing recycling industry, JAINREC is on a growth trajectory, aided by rising demand for recycled/green metals and a regulatory shift favoring organized players, along with the growth of demand for lead and copper in India outpacing global demand growth.
* Further, to move up the value chain and capitalize on the strong long-term demand outlook for copper, driven by renewable energy, data centers, and EVs, JAINREC is focusing on higher-value copper products, which are expected to expand margins and improve earnings visibility.
* We expect a CAGR of 33%/26%/36% in revenue/EBITDA/PAT over FY26-28. We value the stock at 25x FY28 EPS to arrive at our TP of INR460; reiterate BUY.
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