On steady track: We hosted the management of Jindal Stainless (JSL). Management clarified the company’s solution-level approach, underlining the resurgence in demand that the 400 series sees in India. Expansion from 1.9mtpa to 2.9mtpa stays on track. Existing capacity will lead to 15-20% volume development in FY22. Management pointed at its continued focus on deleveraging and guided for start out of dividend payout as merger amongst JSL and Jindal Stainless (Hissar) (JSHL) concludes, probably in the close to term. Maintain ‘buy’ with a target value of Rs 230/share.
Flexibility in production program: JSL highlighted the possible flexibility it enjoys in production organizing. It can adjust the solution profile in 30-45 days based on demand. JSL at the moment has >120 goods in its portfolio. Management highlighted the 400 series as the one exactly where price benefit lies. There is hardly any import seen in 400 series in India when it enjoys strongest incremental demand (vis-à-vis 200/300 series). JSL remains amongst the extremely handful of businesses globally to use liquid ferrochrome, which adds to price benefit in manufacturing the 400 series.
On-time and in-price range completion of brownfield expansion: Equipment ordering has been made to two massive suppliers from Europe with comparable design and style configurations. The suppliers have committed to the timeline and no massive civil or structural work is expected at their finish. Post the ongoing expansion (1.9mtpa to 2.9mtpa), scope of additional brownfield expansion appears restricted: Focus on Hissar stays on worth-addition. Blade steel has 80% marketplace share and JSL is the biggest supplier for Gillette worldwide. Coin blanks are getting supplied to mints in India as effectively as globally. Hissar plant covers an region of 300 acres with .8mtpa when Jajpur plant is spread across 800 acres and had comparable capacity till Nov’19. JSL invested Rs400million in Jajpur to de-bottleneck it to 1.1mtpa.
Competition situation and status of Chromeni steels: JSL management did not sound concerned about it as 35-40% of domestic stainless steel demand is at the moment getting met by imports. Initial program for an integrated stainless steel plant (by Chromeni) has not come to fruition as however, and may possibly take some more time if it tries to pursue it. Large mines of nickel initially permitted Chromeni to supply the metal at competitive costs, which now appears to have stopped.
JSL hunting toward a prudent margin-driven solution mix expects larger 400 series demand in India: 200/300 series previously contributed > 50% of Indian stainless steel demand. The 400 series caters to largely newer applications as in railway and auto sectors. JSL appears to expand the Indian marketplace for 400 series, provided the new consumption pattern (railway coaches’ outer bodies, auto exhaust systems, road more than bridges in railways). Valuations and essential dangers: We sustain ‘buy’ on Jindal Stainless (JSL) with a target value of Rs 230/share. We worth it at 1.8x FY24E P/B, with an implied EV/EBITDA of 5x.