Buy Jindal Stainless Ltd For Target Rs.910 by Motilal Oswal Financial Services Ltd
Strong NSR and volume recovery drive earnings Outlook positive as new capacity ramps up
* Jindal Stainless (JDSL) posted in-line revenue of INR129b (+18% YoY/+14% QoQ) in 2QFY27. The growth was led by strong ASP and volume recovery following the gas supply disruption that muted volumes in 1Q.
* Reported EBITDA was INR14.3b, which came largely in-line with our estimate of INR15b, registering 3% YoY and 8% QoQ growth. This was mainly driven by better volume and NSR, while partially offset by higher RM cost during the quarter. ? APAT for the quarter stood in line at INR8.1b, up 2% YoY and 5% QoQ.
* For 1HFY27, revenue stood at INR242b (+15% YoY) and EBITDA at INR28b (+2% YoY), whereas APAT came in at INR16b (+5% YoY).
* Sales volume for the quarter came in line at 664kt, up 3% YoY and 14% QoQ, marking a resilient recovery following the operational disruptions in 1Q. The disruptions were led by geopolitical challenges and industrial gas availability constraints. ? ASP stood at INR1,93,773/t, up 15% YoY and flat QoQ, fueled by sustenance of SS prices during the quarter.
* Export share remained flat QoQ to 11% during the quarter, as JSL continued to diversify its global reach toward South Korea, Colombia, South Africa, Brazil, and Japan.
* EBITDA/t at INR21,568 (vs. our estimate of INR22,650/t) stood flat YoY, while it declined 6% QoQ due to RM costs inflation during the quarter.
* The consolidated net debt remained steady at ~INR31b, translating to net debt/EBITDA of 0.55x as of 2QFY27.
Highlights from the management commentary
* Management revised its FY27 volume growth guidance to 4-6% from the earlier 7-9%, primarily reflecting the impact of Q1 disruptions and volatile geopolitical developments. However, EBITDA/t guidance was increased to INR20,000-22,000 from INR18,000-20,000, supported by higher focus on value-added products and product mix optimization.
* Management expects a strong recovery in volumes during 2HFY27, supported by the normalization of operations, gradual ramp-up of downstream facilities, and healthy demand across key end-use segments.
* Management reiterated 3.5mtpa sales volume target for FY29, with all expansion projects and capex plans remaining intact. The long-term growth trajectory remains unaffected by near-term operational disruptions.
* Industrial gas availability remained stable during 2QFY27, with no recurrence of disruptions during the quarter. The transition to natural gas has strengthened operational resilience, although the company remains watchful of geopolitical developments and potential energy price volatility
Valuation and view
* JDSL continued to report strong earnings in 2QFY27, supported by volume recovery and sustained NSR, partially offset by RM cost escalation during the quarter. Going forward, we expect earnings to remain strong in FY27/28, mainly on account of incremental volumes from newly added capacity and healthy SS prices offsetting nickel prices volatility.
* At the industry level, SS demand is set for strong growth and is projected to reach +7mt by FY31, driven by domestic SS consumption. As the dominant player in SS space, we believe JDSL is well-placed to capitalize on this robust demand outlook, with higher VAP supporting margins.
* We maintain our earnings estimates for FY27/28 with EBITDA projected to range between INR21,000-22,000/t. JDSL has maintained a resilient B/S, with consol. net debt/EBITDA at 0.55x as of 2QFY27, which is likely to allow it to divert future cash flow toward the next leg of expansion.
* At CMP, the stock trades at 8.3x EV/EBITDA on FY28 estimates. We reiterate our BUY rating with a TP of INR910 (premised on 11x EV/EBITDA on FY28E).
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