Buy Jindal Steel Ltd for the Target Rs 1,200 by Motilal Oswal Financial Services Ltd
Operating outperformance over better NSR; outlook remains strong
* Jindal Steel’s (JINDALST) revenue stood at INR155b (+26% YoY and -5% QoQ) during 1QFY27 and was 10% above our estimates. The beat was driven by better-than-expected volumes and NSR. The QoQ revenue decline was primarily due to muted volumes, which was partially offset by healthy NSR.
* Adj. EBITDA stood at INR27b (flat YoY and -10% QoQ) against our est. of INR24b during the quarter. This translated into EBITDA/t of INR11,900 vs our estimate of INR11,160/t in 1QFY27. The higher coking coal costs of USD23/t QoQ were partially offset by stronger NSR and disciplined cost management, resulting in resilient EBITDA despite lower volumes.
* APAT for the quarter stood at INR8.4b (down 40% YoY and 39% QoQ), against our estimate of INR9.5b in 1QFY27, driven by higher tax outgo.
* Production for 1QFY27 stood at 2.4mt (+15% YoY and -10% QoQ), whereas sales volume stood at 2.23MT (+17% YoY and -15% QoQ). The muted production and sales were due to planned maintenance shutdowns.
* The share of exports stood at 9% in 1QFY27, compared to 5% in 4QFY26.
* Flat steel ASP improved by ~INR7,000/t QoQ, while long product ASP rose ~INR4,500/t QoQ, resulting in a strong NSR jump of 7% YoY and 12% QoQ to INR69,427/t, despite lower sales volumes.
* The consolidated net debt stood at INR159b during the quarter, compared to INR160b as of Mar’26. The net debt/EBITDA increased to 1.71x in 1QFY27 vs 1.66x in 4QFY26
Key highlights from the management commentary
* Management reiterated FY27 steel sales guidance of 10.5-11.0mt despite lower volumes in 1Q, as the decline was attributed to the planned BOF maintenance shutdown. The shortfall is expected to be fully recovered in the coming quarters.
* Management remains focused on maximizing utilization of its installed 15.6mt capacity, initially targeting ~11.5mt, followed by ~12.5-13mt through debottlenecking and operational improvements. Beyond this, the company plans to utilize external metallics (HBI/DRI/scrap) to unlock the full utilization potential of the asset base.
* Current market prices indicate limited correction in flat products (~INR800/t below Q1 average), while TMT prices have corrected by ~INR8,000/t due to seasonal monsoon-led weakness.
* Management expects long steel demand to recover post-monsoon, while the diversified product portfolio provides flexibility to shift production toward higher-VAP during periods of weakness in construction steel.
* Coking coal consumption costs increased by ~USD23/t QoQ during Q1FY27, in line with earlier guidance, while management expects another USD12- 15/t increase in Q2FY27 depending on international coal markets.
* Iron ore costs increased by ~INR500/t during 1Q, while geopolitical disruptions in the Middle East also adversely impacted raw material costs by USD12-13/t.
*1Q witnessed lower operating leverage due to a planned maintenance shutdown, which increased costs by ~INR2,000/t. Management expects cost reduction from 2QFY27 onwards, driven by higher operating leverage and commissioning of the slurry pipeline
Valuation and view - Reiterate BUY
* JINDALST posted a strong 1QFY27 performance, driven by higher NSR. However, the company witnessed cost escalation during the quarter due to muted volumes, higher input costs (coking coal and iron ore), and ongoing disruptions in the Middle East. Costs are expected to moderate over the coming quarters, supported by capacity ramp-up and higher value-added mix.
* We remain positive on JINDALST’s long-term outlook, where the recent increase in its crude steel capacity to 15.6mtpa provides significant headroom for earnings growth. Further, the safeguard duty is expected to keep steel prices steady, supporting margins against input cost volatility.
* A large proportion of capex has already been incurred, and the rest is likely to be funded through internal accruals, keeping net debt/EBITDA below the threshold level of 1.5x. Net debt stood at INR159b in 1QFY27, translating into a net debt/EBITDA of 1.7x. At CMP, the stock trades at 6.8x EV/EBITDA on FY28E. We retain our estimates and reiterate our BUY rating with a TP of INR1,200, based on 7.5x EV/EBITDA on the FY28 estimate.
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