Buy Jindal Stainless Ltd for the Target Rs. 770 by Motilal Oswal Financial Services Ltd
Set for sustainable growth
Strategic expansion to strengthen its global leadership
* Jindal Stainless (JSL) is India’s leading stainless steel manufacturer with a 3mt capacity (plans to expand to 4.2mt by FY27). JSL operates a wide network of 16 stainless steel manufacturing and processing facilities in India and internationally. Its product portfolio includes stainless steel slabs, blooms, coils, plates, sheets, precision strips, wire rods, rebar, blade steel, and coin blanks. JSL is aggressively expanding its capacity and enhancing backward integration to drive sustainable and profitable growth. Additionally, the company focused on enhancing its value-added portfolio, further supporting margins.
* Following the merger, JSL’s revenue recorded a 6% CAGR over FY22-25, primarily driven by a 12% volume CAGR, partially offset by NSR moderation. During the same period, EBITDA posted a compounded decline of 3% due to weak NSR and a surge in input prices. In line with the EBITDA, APAT also registered a 7% compounded decline over the same period. Considering the robust demand, capacity expansion plans, and a focus on valueadded products, we expect JSL to strengthen its market dominance and achieve a 14% CAGR of revenue growth driven by volume growth of 10% CAGR, coupled with NSR improvement of 4% CAGR over FY25-27. Strong revenue growth, coupled with improved cost structure, is expected to drive an EBITDA/APAT CAGR of 17/21% over FY25-27.
* JSL has deleveraged its balance sheet from the peak of INR103b during FY16 to INR40b as of FY25. We expect its OCF at INR62b, which would comfortably fund the ongoing capex of INR40b during the next two years. JSL’s RoE slipped to 15% in FY25 (vs. 18% in FY23), and it is likely to remain steady at 16% in FY27.
* At CMP, the stock trades at 8.4x EV/EBITDA on our FY27 estimate. We initiate coverage on the stock with a BUY rating and a TP of INR770 (premised on 10x FY27E EV/EBITDA). We believe that JSL’s focus on strategic acquisitions and greater raw material security will further strengthen its growth prospects.
Expansion underway to cater to robust demand
* JSL is executing a strategic INR57b investment plan to expand its capacity, enhance downstream operations, and diversify its product portfolio. Over 40% of this capex has already been incurred as of FY25, increasing the total capacity by 40% to 4.2mtpa by FY27.
* As part of its overseas presence, JSL has entered into a JV in Indonesia to establish a 1.2mtpa Steel Melt Shop (SMS). Domestically, JSL is strengthening its downstream operations, particularly in Jajpur.
* Further, JSL has acquired Jindal United Steel (JUSL) with a hot (3.2mtpa) and cold (0.2mtpa) rolling capacity. It is also diversifying into the infra space by acquiring Rathi Super Steel (RSSL) and Rabirun Vinimay (RVPL).
* JSL aims to increase the share of its CR products to 75% (vs. 45% currently) with the acquisition of Chromeni Steels, which has a capacity of 0.6mtpa and the potential to expand to 4mtpa.
RM security + backward integration = Mitigating input cost volatility
* Nickel, which accounts for ~50% of input costs, is a critical raw material for SS production. India lacks domestic reserves and relies on imports, primarily ferronickel and stainless steel scrap. However, global scrap availability is tightening due to export restrictions and disruptions like trade tension. JSL is strategically mitigating the nickel price volatility through backward integration.
* To secure long-term supply, JSL has entered into a JV with New Yaking Pte Ltd for a Nickel Pig Iron (NPI) smelter in Indonesia (49% stake). The facility has been operational since Aug’24, ensures an annual supply of 0.2mt NPI with 14% nickel content and reduces JSL’s exposure to nickel price fluctuations.
ART and new-age sectors to be the catalyst for future stainless steel demand
* India is the second-largest stainless steel producer but still has low per capita consumption of 3.1kg (vs. China’s 20.1kg). India’s stainless steel demand is set for substantial growth, with per capita consumption projected to reach 8.5-11.5kg (~12-20mt) by 2047.
* The Architecture, Building, and Construction (ABC) sector will be the major growth catalyst, supported by government-led infra initiatives. India’s expanding automotive industry, along with growing metro network/Vande Bharat projects, will boost stainless steel demand.
* New-age sectors, the process industry, and consumer durables account for +70% of India’s stainless steel consumption. As income levels, urbanization, and exports increase, the demand from these sectors is projected to grow rapidly, boosting stainless steel consumption.
Operational synergies via integration, expansion, and value addition
* The company has streamlined its corporate structure by merging with its promoter holding company (Jindal Stainless - Hisar) and acquiring key assets. This has led to increased capacity, enhanced backward integration, and downstream product diversification and value addition. As a result, JSL has become the largest stainless steel player in India and one of the top global manufacturers.
* JSL has formed two JVs in Indonesia to establish an NPI facility and an SMS, ensuring a stable nickel supply and reducing price volatility. Recent acquisitions (CSPL, JSUL, RSSL, RVPL) complement these efforts, allowing JSL to handle increased melt capacity and expand its VAP share.
Building a stainless future and navigating uncertain waters; initiate with BUY
* Following the merger, JSL clocked a 6% revenue CAGR, primarily driven by a 12% volume CAGR, partially offset by NSR moderation. EBITDA recorded a compounded decline of 3% during FY22-25 due to weak NSR and a surge in input prices.
* Going forward, we estimate JSL to post a 10% CAGR in volumes and a 4% CAGR in NSR, driving revenue growth at a similar rate of 14% CAGR over FY25-27. New capacity additions will support upstream production and cater to rising demand. JSL is also expanding its VAP share via acquisitions (CSPL, JSUL, RSSL, RVPL), which is expected to enhance NSR. We anticipate EBITDA/t to range between INR20,500 and 22,000, supported by a better cost structure and a higher share of VAP with an improved mix. JSL has deleveraged its balance sheet from the peak of INR103b during FY16 to INR40b as of FY25, resulting in a net Debt/Equity ratio of 0.2x. RoE, which had reduced to 15% in FY25 (vs. 18% in FY23), is likely to remain stable at 16% in FY27.
* Considering the strong focus on capacity expansion, RM integration, enhanced VAPs share, and tight B/S control, we initiate coverage on JSL with a BUY recommendation. We value the company at 10x on FY27E EV/EBITDA, arriving at a TP of INR770 per share.
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