Company Visit Note: Jindal Stainless Ltd - NOT RATED - Kotak

We visited Jindal Stainless plant, where management reiterated that, dynamics of India's stainless steel industry continues to remain favorable, with a demand growth of 8-9% CAGR, over the next 4-5 years. The JSL group (including JSL Hisar), which is a market leader with ~54% market share, stands to gain in the future. In order to meet the future demand, JSL undertook debottlenecking initiatives that would expand the capacity to 1.1MT from 0.8MT by end of FY19E, at a much lower capex of Rs400-500mn. In addition, the company is also focusing on cost optimization, ensuring logistics facilities and mining plan (backward integration - chrome ore).

Key Highlights

- With the debottlenecking initiatives, JSL can augment its capacity to 1.1MT by end of FY19E and possibly of 1.6MT in the near term, at low incremental capex. The plant has been configured in a way to take the total installed capacity to 3.2MT, as resources and logistics facilities are in place.

- The company review final product selling price periodically, in a manner that passes on the fluctuation in input costs. Management expects margin to remain in the range of 11-14%.

- Despite, the safeguard duty, imports continues to remain high in the domestic markets, as it's been routed through FTA countries.

- Domestic demand is expected to grow at a CAGR of 8.9% over the next 4-5 years, supported by automotive, railways, construction (infrastructure) and process industry. Given JSHL's market position we believe the group is well poised to capture higher market share.

Valuation & outlook

Given the higher market share and improving profitability with a change in product mix to value added product (VAP) (post the ramp up of the facilities), return ratios are likely to remain strong and will be higher compared to its European peers. Higher domestic demand, market leadership and superior return, the company have an edge over its overseas counterparts. Besides this, in the domestic market, with the robust demand, the company is likely to strengthen its position further, as no new capacities coming on stream. Post the completion of debottlenecking activities, there is a possibility of margin going down, as strengthening of product mix would take some time. But absolute numbers in terms of EBITDA and PAT would increase.

Key risks

Increase in raw material prices; slowdown in economy

Shares of JINDAL STAINLESS LTD. was last trading in BSE at Rs.56.35 as compared to the previous close of Rs. 54.35. The total number of shares traded during the day was 63939 in over 433 trades.

The stock hit an intraday high of Rs. 56.85 and intraday low of 54. The net turnover during the day was Rs. 3577496.

Source : Equity Bulls

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