Buy Jindal Stainless and Fittings Ltd for the Target Rs 920 by Motilal Oswal Financial Services Ltd
Expansion to strengthen long-term growth visibility We recently hosted Jindal Stainless (JDSL) for investor meetings in Singapore. Following are the key takeaways:
* JDSL is witnessing strong demand for stainless steel across key end-use sectors and newer applications. The company is targeting sustainable longterm growth through:
1) capacity expansion,
2) raw material security
3) product diversification and value addition
4) maintaining a healthy balance sheet.
* Demand outlook: The company expects demand to remain resilient, supported by key end-use sectors such as automotive, pipes and tubes, railways, metro, elevators, and white goods, which continue to drive steady consumption. It expects industry to grow at 8-10% annually.
* Increased melt capacity: JDSL commissioned a 1.2 mtpa stainless steel melt shop in Indonesia, securing access to nickel. It plans to import slabs from Indonesia and process them in India, retaining value-added margins domestically.
* Downstream expansion: The company is expanding its downstream capacity through a 1.1 mtpa HRP line and 0.17mtpa CRP line at Jajpur. It is also augmenting cold rolling capacity at Hisar and Kharagpur, taking cold rolling capacity to 2.67mtpa by FY28. This expansion is expected to enhance product mix and profitability, while supporting total annual sales volumes of 3.5mt by FY29.
* Cold-rolled portfolio: The company has acquired Chromeni Steels (0.6mtpa), bringing total CR capacity to ~2.1mtpa, with a potential to reach 4mtpa.
* Long-term growth plans in place: JDSL has signed an MoU with Maharashtra for a 4mtpa greenfield project, to be developed in a phased manner of 1mtpa each over 15 years
Superior product mix to improve NSR and mitigate import threats
* JDSL has steadily improved its product mix by increasing the share of higher-value 300/400 series grades, reducing exposure to cheap Chinese/Indonesian imports, and improving realizations.
* The company’s strategic moves of Indonesia JVs (NPI + 1.2mtpa SMS) and downstream acquisitions (CSPL, JUSL, RSSL, RVPL) are expected to strengthen raw material security, support incremental melt capacity, and drive its cold-rolled share toward the 75% target (vs. 45% earlier).
* While JDSL has historically been concentrated in flat products with low infra exposure (3-5%), the RSSL and RVPL acquisitions have expanded its presence into the infra segment, which accounts for ~20% of India’s SS demand. With a rising VAP portfolio and a richer product/series mix, JDSL is well-positioned to sustain strong profitability, with an anticipated EBITDA/t of INR20,500-22,000/t over FY27-28, backed by better NSR, cost efficiency, raw material stability, and ongoing capacity ramp-up
Valuation and view
* The SS industry is set for strong growth as India’s SS consumption is expected to reach 7.3mt by FY31 and 12.5-20mt by 2047, backed by rising adaptability across sectors like infrastructure, manufacturing, automotive, consumer durables, and growing new-age sectors. We believe JDSL is well-placed to capitalize on this robust demand outlook, with a higher VAP portfolio supporting margins.
* From being solely a flat SS producer to a diversified long SS player, JDSL has expanded into rebar, wire rods, and others, unlocking significant infrastructure opportunities. Additionally, its focus on value-added CR SS has strengthened its position in both domestic and export markets. ? At CMP, the stock trades at 8.8x EV/EBITDA and 2.3x P/BV on FY28E. We reiterate our BUY rating with a TP of INR920 (premised on 11x EV/EBITDA FY27 estimate).
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