Result Update: Jindal Stainless (Hisar) Ltd - BUY - TP Rs.227 - Kotak

JSHL's 1QFY19 numbers were below our estimates, due to lower than expected volume. Despite the sharp rise in nickel and electrodes prices, margin during the quarter declined by 90 bps only due to strong realisation and focus on value added products. Performance of subsidiaries remained firm.

Key Highlights

- Despite the strong steel demand in 1QFY19, the stainless steel sales volume was up mere 3% YoY to 170,422 tonnes (down 9.7% QOQ) during the quarter, as imports increased substantially. Realization stood at Rs125,169/tonne.

- EBITDA/t during the quarter declined to Rs14,765/tonne from Rs15,151/tonne and Rs15,206/tonne in Q4FY18 and 1QFY18, respectively. Raw material cost during the quarter increased by Rs4,183/tonne to Rs86,534/tonne.

- Subsidiaries performance: Jindal Stainless Steelway Ltd and JSL Lifestyle Limited reported PBT of Rs180 mn and Rs170 mn, respectively,

- The management focus will be on improving operating efficiency and higher penetration in Specialty products. The revenue growth is likely to remain modest going ahead, in our view.

Valuation & outlook

- We believe, an increasing share of value added products in the overall product mix, will help the EBITDA to grow at a CAGR of ~8% during the FY18-FY20E period, with margin in the range of 11.5-12.5%. Besides this, the strong subsidiary's performance will also be a potential growth driver. On the back of 1QFY19 performance, we lowered our earnings for FY19 to Rs19.1 (earlier Rs21.5). We believe with higher domestic demand, market leadership and superior return, the company should trade at a premium to its overseas counterparts, who are trading in the range of 5-6.5x 1yr forward EV/EBITDA. We continue to maintain our BUY rating, with an unchanged target price of Rs227.

Shares of Jindal Stainless (Hisar) Ltd was last trading in BSE at Rs.138.8 as compared to the previous close of Rs. 133.85. The total number of shares traded during the day was 115531 in over 1295 trades.

The stock hit an intraday high of Rs. 140.35 and intraday low of 134. The net turnover during the day was Rs. 15946149.

Source : Equity Bulls

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