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Research
Sector Update - Indian Stainless Steel - ICICI Direct
Posted On : 2021-01-01 18:11:49( TIMEZONE : IST )
The board of directors of Jindal Stainless (JSL) and Jindal Stainless (Hisar) (JSHL) have accepted the recommendations of the respective board committees and approved the merger of JSHL into JSL. The transaction between Jindal Stainless (Hisar) and Jindal Stainless Ltd is an all-equity merger. As per the approved share swap ratio, 195 equity shares of JSL will be issued for every 100 equity shares of JSHL. Furthermore, as per the proposed structure, the mobility business of JSL Lifestyle Ltd, a domestic subsidiary of JSHL, would be merged into JSL. Non-mobility businesses would be carved out as a separate new entity, called Jindal Lifestyle Ltd. Post restructuring, Jindal Stainless Steelway Ltd (JSSL) and Jindal Lifestyle Ltd will operate as Indian subsidiaries while overseas operational subsidiaries of JSL in Spain and Indonesia will continue to operate as business units of merged JSL. The proposed merger would be completed once all requisite approvals are received. Post completion of the merger, the new combined entity (i.e. JSL) will be the single listed entity on the stock exchanges. The promoter holding of the new entity will be ~57% while the remaining ~43% will be held by the public. The appointed date is April 1, 2020, while the merger process is expected to be completed by H2FY22.
Valuation & Outlook
If the potential consolidation of both companies materialises, it is expected to result in economies of scale and better bargaining power for the combined entity. The potential consolidation would also enable harnessing of the complementing strengths of individual companies. Furthermore, a seamless integration of infrastructure, processes and operational synergies, along with a strengthened balance sheet, would improve financial flexibility. We await requisite regulatory and shareholder approvals. We value JSL at 5x FY23E EV/EBITDA and maintain our target price of Rs. 90. We value JSHL on an SoTP basis and maintain our target price of Rs. 170. We maintain BUY rating on both stocks.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_StainlessSteel_SectorUpdate_Dec20.pdf
