Buy Jindal Steel and Power; target of Rs 900: Motilal Oswal

Motilal Oswal's research report on Jindal Steel and Power

The ongoing capacity expansion at Angul (Odisha) will significantly enhance Jindal Steel and Power’s (JSP) crude steel capacity by over 65% to 15.9mt. The planned expansion, which is expected to be completed by 3QFY26, will catapult JSP to the fourth largest steel manufacturer in India. Along with the capacity expansion, JSP plans to strengthen its raw material integration, increase the share of CPP, increase the share of flat steel, and undertake product enrichment. The planned capex will result in volume growth and a reduction in structural costs. JSP recently commissioned and dispatched its first rake from 6mt HSM 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 Oct’23, JSP started production at Gare Palma IV/6 mines, which supply coal to its Raigarh facility. At the current mine, JSP has already mined ~1mt of coal in 3QFY24 and as production ramps up, the mine can see increased raw material integration, which helps JSP to accelerate its capacity expansion.

Outlook

JSP has followed a prudent deleveraging policy to strengthen its balance sheet. With net debt of ~INR91b in 9MFY24 and a net debt-to-EBITDA ratio at a comfortable level of 0.9x, JSP has one of the strongest balance sheets among the domestic ferrous manufacturers. The stock trades at 5.2x FY26E EV/EBITDA and 1.3x FY26E P/B. We reiterate BUY on the stock with a TP of INR900 (6x FY26E EV/EBITDA).

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Jindal Steel & Power - 21022024 - moti