Buy Jindal Stainless for the Target Rs 910 by Motilal Oswal Financial Services Ltd
Attractive risk-reward: Structural growth to outweigh nearterm headwinds
We maintain our positive stance on Jindal Stainless (JDSL), as the recent stock correction offers an attractive risk-reward opportunity in India's largest SS producer, having more than 50% domestic capacity share and over 90% volumes from domestic markets. We believe the near-term concerns related to fuel cost inflation, nickel supply uncertainty, import pressure, and export barriers are largely priced in, and the long-term growth outlook remains robust. The newly added melt shop, along with the downstream expansion, provides strong earnings visibility. Further, the new SS expansion plan in Maharashtra positions JDSL to capture the next leg of the growth curve with India's structural SS demand posting ~10% CAGR. Meanwhile, the domestic SS prices continue to trade at a 9-10% discount to the China import parity price, suppressed by the extension of the BIS exemption. However, we expect this artificial pricing pressure to ease once the QCO exemption expires and the anti-dumping duties are finalized. Despite the discounted domestic SS prices and inflated near-term costs, we believe JDSL will sustain its EBITDA/t close to INR21,000/t for FY27E, and +INR22,000/t in FY28E. A larger scale of operations, combined with a focus on value-added products and cost-saving measures, to support earnings. At CMP, the stock trades at 9x EV/EBITDA and 2.3x P/BV on FY28E. We reiterate our BUY rating with a TP of INR910 (premised on 11x EV/EBITDA FY28 estimate).
Capacity additions provide visibility on the next phase of growth
* JDSL commissioned a 1.2MTPA stainless steel melt shop (SMS) in Indonesia via JV with Tsingshan (JDSL holds a 100% offtake agreement), taking the consolidated melt capacity to 4.2MTPA.
* The incremental output from the Indonesia JV is designed to be processed in India, and to complement this rise in melt capacity, JDSL has geared up to commission a new CRAP line (0.17MTPA) and HRAP line (1.1MTPA) in Jajpur by 2Q/4QFY27 (part of the earlier capex plan).
* To further boost its CR share, it announced a fresh capex of INR9b at Hisar and Kharagpur with expected commissioning by 2QFY28, taking the total CRAP capacity to 2.67mtpa by FY28 (comprising ~65% of melt capacity).
* The company’s strategic moves for Indonesian JVs (NPI + 1.2mtpa SMS), some downstream acquisitions (CSPL, JUSL, RSSL, and RVPL), and expanding downstream capacities will strengthen raw material security, support incremental melt capacity, and drive higher VAP share.
* With all strategies in place, management guides a sales volume of ~3.5MT by FY29, which implies ~11% CAGR over FY26-29. These stand in line with our estimate of ~3.1mt by FY28 with 10% CAGR over FY26-28E.
* Consolidated net debt/EBITDA at 0.8x in FY26 (expected 0.2x by FY8E) stands among the cleanest leverage profiles in the domestic ferrous space. This leverage profile will support JDSL in funding its new SS project planned in Maharashtra, capturing the next phase of the growth curve.
Domestic structural SS demand remains a multi-year driver
* Domestic SS demand has structurally re-rated over the last cycle, where India’s SS consumption clocked 10% CAGR over the last five years to 4.8mt in FY26.
* This growth was predominantly driven by infrastructure, railways & metros (Vande Bharat trainsets and metro rollouts), and airports. Management cited Infrastructure, railways, and process industries as the key growth drivers in the near future. At an 8% CAGR, we expect domestic SS consumption to reach ~7.3mt by FY31.
* On the global side, the global export market remained uncertainty-driven by trade tensions and ongoing conflicts. Meanwhile, China's policy aimed at curbing the oversupply-led dumping will support global SS prices.
* We believe JDSL is well positioned within the multi-year structural demandsupply dynamic, holding over 50% of the domestic capacity share with more than 90% domestic mix.
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