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Motilal Oswal Report
Jindal Steel and Power Ltd. plans to incur a significant capex to enhance its crude steel capacity to 15.9 million tonne from current 9.6 mt and strengthen raw material integration and product enrichment.
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The planned capex could result in volume growth and a reduction in structural costs. With the planned capex, JSPL will increase its flat steel capacity to 7.7 mt from 2.2 mt to cater to automotive and high-tensile steel, thereby enhancing its product mix.
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In Q1 FY24, the company signed a mining lease for Gare Palma IV/6 and Utkal C, with total reserves and resources of ~363 mt and environmental clearance of ~7.4 mt per annum.
JSPL has already entered the Gare Palma IV/6 mines and is in the final stage of entering Utkal-C mines. After the two mines become operational, they will fulfill ~50% of JSPL's thermal coal requirement, thereby reducing its dependence on the import of coal and merchant mines.
JSPL over last few years has shifted its focus to high-margin value-added product (~65% of sales). This has helped the company strengthen its product offering across the value chain and improve realisations.
The company has followed a prudent deleveraging policy to strengthen its balance sheet. With net debt of ~Rs 68 billion in Q1 FY24 and a net debt-to-Ebitda ratio at a comfortable level of 0.75 times, JSPL has one of the strongest balance sheets among the domestic manufacturers. The stock trades at 4.8 times FY25E enterprise value/Ebitda.
We reiterate 'Buy' on the stock with a target price of Rs 790 (5.5 times FY25E EV/Ebitda).
Key downside risk: Delay in the commissioning of the Angul plant and coal mines may delay growth and margin improvement.
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