On Track: We welcomed the management of Jindal Stainless (JSL). Management clarified the company’s strategy at the product level, highlighting the resurgence of demand that the 400 Series is seeing in India. The expansion from 1.9 mtpa to 2.9 mtpa remains on track. Existing capacity will result in volume growth of 15-20% in FY22. Management emphasized that it continues to focus on deleveraging and has moved towards starting dividend payments as the merger between JSL and Jindal Stainless (Hissar) (JSHL) ends, probably in the short term. Maintain “buy” with a target price of Rs 230 / share.
Flexibility in production plan: JSL highlighted the potential flexibility it enjoys in production planning. It can change the product profile in 30-45 days depending on the demand. JSL currently has over 120 products in its portfolio. Management pointed out that the 400 Series is where the cost advantage lies. There are hardly any imports in the 400 series in India, although it enjoys the strongest incremental demand (vis-à-vis the 200/300 series). JSL remains among the very few companies in the world to use liquid ferrochrome, which adds to the cost advantage in manufacturing the 400 series.
Brownfield expansion completed on time and on budget: The equipment order was placed with two major European suppliers with similar design configurations. Suppliers are committed to meeting deadlines and no major civil engineering or structural work is required upon completion. After the current expansion (1.9 mtpa to 2.9 mtpa), the scope of the brownfield expansion seems limited: the focus on Hissar remains on added value. Blade steel has an 80% market share and JSL is Gillette’s largest supplier in the world. Coin blanks are provided to Indian and world currencies. The Hissar plant covers an area of 300 acres with 0.8 mtpa while the Jajpur plant covers 800 acres and had a similar capacity until November 19. JSL has invested 400 million rupees in Jajpur to reduce it to 1.1 million tonnes per year.
Competition scenario and status of Chromeni steels: JSL management did not seem to care, as 35-40% of domestic demand for stainless steel is currently met by imports. The initial plan for an integrated stainless steel factory (by Chromeni) has yet to come to fruition and could take a little longer if he tries to pursue it. The large nickel mines first allowed Chromeni to source metal at competitive prices, which now seems to have stopped.
JSL envisions a conservative product line focused on margins; expects demand for 400 series to increase in India: 200/300 series previously contributed over 50% of Indian demand for stainless steel. The 400 series is mainly intended for more recent applications such as in the railway and automotive sectors. JSL is looking to expand the Indian 400 series market, considering the new consumption model (exterior body of railway cars, automatic exhaust systems, road bridges in railways). Valuations and main risks: We maintain “buy” on Jindal Stainless (JSL) with a price target of Rs 230 / share. We estimate it at 1.8x FY24E P / B, with an implied EV / EBITDA of 5x.