Buy Jindal Steel Ltd for the Target Rs 1,400 by Emkay Global Financial Services Ltd
JINDALST reported a resilient 1Q, with adjusted EBITDA of Rs26.7bn (flat qoq), beating our/consensus estimates by 6.6%/3.0%. This was supported by a ~Rs7,500/t qoq improvement in NSR, driven by stronger steel prices and richer product mix, despite planned maintenance-led volume weakness. EBITDA/t improved to Rs11,957, offsetting higher coking-coal costs and lower fixed-cost absorption. The management reiterated its focus on maximizing utilization of its 15.6mt capacity, increasing share of value-added products, and maintaining disciplined ROCE-led capital allocation without stretching the balance sheet for commodity capacity additions. We believe higher capacity utilization, an improving product mix, and operational efficiencies should drive EBITDA/t to Rs14,000 by FY28, while industry-leading volume growth (~14% CAGR over FY27-29E) supports a 26% EBITDA CAGR. We retain BUY and TP of Rs1,400.
Stable quarter despite volume headwinds
JINDALST reported adjusted EBITDA of Rs26.7bn (flat qoq, -10.7% yoy) in 1Q, modestly ahead of Emkay/consensus estimate by 6.6%/3.0%, respectively. The outperformance was primarily driven by higher NSR in 1Q. Average realization improved by ~Rs7,500/t qoq, aided by stronger steel prices and richer product mix. This was partly offset by a $23/t increase in coking-coal cost and lower fixed-cost absorption. Consequently, EBITDA/t improved to Rs11,957 (vs Rs10,103 in 4QFY26). Operationally, production declined to 2.4mt (-9.4% qoq), while sales declined to 2.2mt (-14.9% qoq) on planned maintenance shutdowns. Net debt was broadly flat at Rs159bn (+10.6% yoy), with net debt/EBITDA rising to 1.7x (vs 1.5x in 1QFY26).
Cost efficiencies and VAP to drive earnings delta
The management reiterated that the company's strategic focus will be on maximizing the utilization of its existing 15.6mt steelmaking capacity while shifting the product portfolio further toward value-added and specialty steel, rather than chasing commodity volume growth. The company intends to improve realizations through a higher share of differentiated products, with value-added products already increasing to 66% of sales in 1QFY27 (61% in 4QFY26). We believe the management’s focus on ROCE-led growth through improving value-added product mix, increasing capacity utilization, and disciplined capital allocation should support structurally higher margins, stronger free cash flow generation, and lower balance sheet risk over the near-to-medium term, making earnings less susceptible to commodity steel price volatility
Volume growth to comfort earnings; maintain BUY
Over FY27-29E, we expect 14% volume CAGR (vs peers’ at ~3%), with the new capacity likely to operate at ~50%/80% utilization in FY27/FY28E, driving volume growth. This should translate to a strong EBITDA CAGR of 26% over FY26-29E. Factoring in 1Q results and the management’s guidance on volumes and cost efficiencies, we believe pricing strength, coupled with improving operating leverage, will drive EBITDA/t to ~Rs14,000 by FY28E. We retain BUY and TP of Rs1,400.
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