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Despite challenging business environment, JSL reported better than expected Q1FY25 consol EBITDA of Rs12.1bn (CentrumE: Rs10.7bn) up 17% QoQ as well as EBITDA/t above estimate at Rs20,960 (CentrumE: Rs18,835/t) up 15.5% QoQ. The outperformance was largely favoured by low cost inventory during the quarter. The sales volume increased by 1.4% QoQ led by strong domestic demand but realisation/t remain flattish QoQ. Standalone EBITDA/t reported at Rs17,373/t (CentrumE: Rs15,995/t), up by 19.7% QoQ. The consolidated net debt increase by Rs10.1bn to Rs49.5bn. We estimate JDSL profitability to improve with EBITDA and PAT growing at 24%/38% CAGR over FY24- 26E factoring incremental Rs12bn EBITDA through acquisitions. Further, strong RoE of 24% and net debt/EBITDA ratio of 0.3x by FY26 if no further capex is announced. On strong earnings outlook, we Upgrade our rating to BUY and increase our TP to Rs816 (Earlier: Rs647/sh), valuing at 9x (Earlier:7x) FY26E EV/EBITDA.

EBITDA rises QoQ in challenging quarter

During Q1FY25, JDSL sold 578kt of stainless steel (SS), up 1.4% QoQ. JDSL exports stood at 10% (11% in Q4FY24) of total volume due to weak demand in key export market. In domestic market stainless steel demand remain strong across the sectors, while in key export market like Europe and US, the demand remained muted due to geopolitical concerns. Gross Margins expanded to 33% vs 31% in Q4FY24 supported by low inventory cost. Management guided 20% increase in sales volume in FY24 and FY25. Further, maintained EBTDA/t guidance of Rs18,000-20,000/t.

Caprx on track

During the quarter, the consolidated (incl. JUSL) net debt as on Mar-end 2024 stood at Rs49.47bn, up by 25.6% QoQ. JSL announced capex of Rs ~54bn to augment its melting and downstream facilities in order to reach a capacity of 4.2 mtpa. This included a 49% partnership in a joint venture for a 1.2 mtpa SS melting shop in Indonesia; expansion in downstream capacity in Jajpur, Odisha; and acquisition of a 54% equity stake in Chromeni Steels in Mundra, Gujarat. The acquisition and expansion projects will ensure raw material security, strengthen its position in value added market and extend its reach within India and overseas. As a result, overall capex guidance for FY25 is Rs 55bn

We upgrade to BUY with target price of Rs816

Jindal stainless is facing near term challenges due to continuous fall in stainless steel and nickel prices as well as subdued export demand. However, with medium to long term view, we believe JDSL’s profitability to remain solid on account of commissioning of capacity expansion as well as forward integration. We expect JDSL to clock standalone EBITDA/t > Rs20,000 on ramping up of capacities as well as higher value added product mix. JDSL is well positioned to capitalise on strong stainless steel demand and expect EBITDA growth of ~24% CAGR over FY24-26, strong operating cash flows and debt reduction. Hence, we upgrade our rating to BUY and raise target multiple from 7x to 9x FY26E EV/EBITDA for target price of Rs816.

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