JM Financial has placed a ‘Buy’ rating on Jindal Steel & Power (JSPL), with a target price of ₹1,150, forecasting a 19% upside over the next 6-12 months. The recommendation is based on the company’s strong growth pipeline, backed by its ongoing capacity expansion and raw material integration strategy.
Key Investment Rationales
- Capacity Expansion to Boost Performance: JSPL is expanding its crude steel production capacity by 65% to 15.9 million tonnes and finished steel capacity by 90% to 13.75 million tonnes by FY26. This expansion is set to make JSPL the fourth largest steel manufacturer in India. A larger share of flat-steel products is expected, which will boost margins, as flat-steel products typically command a premium over long-steel products.
- Raw Material Integration to Expand Margins: The company benefits from significant raw material integration, with 60% of its iron ore needs met internally. Additionally, JSPL is expected to achieve 100% coal integration upon the commissioning of its thermal coal mines. This integration reduces raw material costs, positioning JSPL as one of the lowest-cost steel producers domestically.
- Strong Q1 Results: JSPL reported a strong Q1FY25 with consolidated EBITDA of ₹28 billion, significantly higher than JM Financial’s estimate of ₹25 billion. The company achieved this on the back of strong delivery volumes and greater integration of high-capacity thermal coal. Sales volumes exceeded 2 million tonnes for the first time, driven by contributions from a newly commissioned hot strip mill.
Financial Summary (FY24A-FY26E):
- Revenue: ₹50,026 Cr (FY24A) to ₹67,166 Cr (FY26E)
- EBITDA: ₹10,200 Cr (FY24A) to ₹15,780 Cr (FY26E)
- EBITDA Margin: 20% (FY24A) to 23% (FY26E)
- EPS: ₹57.8 (FY24A) to ₹80.9 (FY26E)
- ROE: 14.2% (FY24A) to 15.0% (FY26E)
- P/E: 17.6x (FY24A) to 12.6x (FY26E)
Key Risks
- International Steel Price Decline: A sharp fall in international steel prices could hurt JSPL’s earnings. Additionally, a rise in coking coal and iron ore costs could affect margins.
- Capacity Expansion Delays: Any delay in the company’s capacity expansion plans or economic slowdowns could impact JSPL’s ability to meet its growth targets.
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from JM Financial and do not constitute investment advice. Investors are advised to perform their own research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results, and the author and publication are not responsible for any losses incurred based on this information. Please read all scheme-related documents carefully before investing.
