Shares of Jindal Stainless Ltd. closed higher on Friday after PhillipCapital initiated coverage with a "buy" call, expecting faster-than-market growth potential given the new-age application of stainless steel.
The Singapore-based brokerage said Jindal's "volume-driven growth story playing out" in the next 12 months, with the stock reaching Rs 300 apiece, implying an upside of around 25% from the current market price of Rs 240.
"Jindal Stainless, along with its sister concern Jindal Stainless (Hisar) Ltd., currently has around 50% market share in the Indian stainless steel market, and since it is increasing its capacities, allowing for faster-than-market growth, we hold that the company will improve its market standing as well," the brokerage said in a Jan. 5 note.
Stainless steel's new age applications in construction, automobiles, and railways will also help the JSW Group firm grow. "New-age applications will witness an increasing share from hereon. These applications also command better margins, and thus, product mix enrichment would also help in market expansion."
The steelmaker's debt is set to peak in FY23, with the firm heading toward self-sustainability, according to PhillipCapital. "Jindal Stainless has been consistently reducing its debt since the last four to five years and has managed to come out of a corporate debt restructuring scheme in FY20-21," it said.
"We see the debt increasing... due to the acquisition of Jindal United Steel Ltd. This, combined with the remaining Rs 1,200–1,400 crore capex at the group level, will increase the overall debt to Rs 6,200–6,300 crore by FY23, which we expect will be the peak level. All this should increase the overall interest outgo to Rs 600–700 crore," the brokerage said. However, "the combined capacity will be big enough to fund future capex from internal accruals", it said.
The group's consolidation is in progress, first with the merger of Jindal Stainless (Hisar) into Jindal Stainless and then with the acquisition of Jindal United Steel, PhillipCapital said. "As a result of the acquisition, Jindal Stainless will become an integrated stainless steel manufacturer. This will lead to better synergies between both companies and a preferred governance structure, which will increase value for all stakeholders," it said.
Shares of the company ended with 0.15% gains at Rs 238 apiece on Friday, compared to a decline of 0.74% at close for the NSE Nifty 50.
All eight analysts tracking the company recommend "buy", according to Bloomberg data. The 12-month consensus price target implies an upside of 9.5%.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
