Jindal Steel & Power - Capacity Expansion To Propel Growth: Motilal Oswal

Motilal Oswal Report

The ongoing capacity expansion at Angul (Odisha) will significantly enhance Jindal Steel and Power Ltd.’s crude steel capacity by over 65% to 15.9 million tonne. The planned expansion, which is expected to be completed by Q3 FY26, will catapult JSPL to the fourth largest steel manufacturer in India.

Along with the capacity expansion, JSPL plans to strengthen its raw material integration, increase the share of captive power plant, increase the share of flat steel, and undertake product enrichment. The planned capex will result in volume growth and a reduction in structural costs.

JSPL recently commissioned and dispatched its first rake from 6 mt hot strip mill at Angul in a record period of 30 months. This achievement enables the company to cater to key sectors such as automobile, construction, oil, GP, color coating, etc.

In October 23, JSPL started production at Gare Palma IV/6 mines, which supply coal to its Raigarh facility. At the current mine, JSPL has already mined ~1 mt of coal in Q3 FY24 and as production ramps up, the mine can see increased raw material integration, which helps JSPL to accelerate its capacity expansion.

In addition, JSPL has also commenced production at its Utkal C coal block within a record time of 12 months and the entire incremental benefits from this mine are expected to accrue in FY25E, which should further strengthen raw material integration.

JSPL has followed a prudent deleveraging policy to strengthen its balance sheet. With net debt of ~Rs 91 billion in 9M FY24 and a net debt-to-Ebitda ratio at a comfortable level of 0.9 times, JSPL has one of the strongest balance sheets among the domestic ferrous manufacturers.

The stock trades at 5.2 times FY26E enterprise /Ebitda and 1.3 times FY26E price/book. We reiterate 'Buy' on the stock with a target price of Rs 900 (six times FY26E EV/Ebitda).

Key downside risk: A delay in the commissioning of the remaining coal mines may delay cost synergies and margin improvement.

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