Shares of Jindal Steel & Power Ltd (JSPL) slipped below Rs 550 level in Wednesday's trade amid a two-day fall, as the reported fall in March quarter Ebitda and profit came in a bit worse than Street estimates. The comprehensive inventory review by the company -- wherein some input materials turned obsolete and could no longer be used for steel making, led to a write-off.
Higher iron ore cost given increased spread between lumps and fines prices also hurt numbers. Despite a poor show, select brokerage retained their 'Buy' ratings on the stock with price targets of up to Rs 750 suggesting up to 39 per cent upside.
Jindal Steel has embarked on an ambitious capacity expansion plan -- 9.6 mtpa to 15.9 mtpa, to emerge as a flats (steel products) heavy player and analysts stayed positive on the company’s prospects.
"The Angul capex program is a low-hanging fruit offering low-cost, short-gestation and value-accretive brownfield expansion. The capex will also help address the mismatch between finished steel capacity and crude steel capacity thereby reducing the proportion of semis going forward. The company’s coal security is expected to improve post commencement of coal blocks - Utkal C, Utkal B1, B2 and Gare Palma IV/6," JM Financial said.
The stock fell 3.85 per cent to hit a low of Rs 538.60 on BSE.
While suggesting a target of Rs 675, JM Financial said a strong balance sheet, increasing raw material security, and low cost of production makes Jindal Steel well-positioned to withstand cyclical challenges, subject to execution risk.
ICICI Securities, which has a target of Rs 750 on the stock, said Jindal Steel's production was impacted by operating issues at heat exchanger in DRI plant at Angul while noting that the performance of overseas mining subsidiaries improved on the back of cost-efficiencies.
The steel maker report a profit of Rs 466 crore for the quarter, down 15.27 per cent YoY.
"Going ahead, we expect cost-efficiencies from commissioning of 6mtpa pellet plant and slurry pipeline, and progressive operationalisation of coal blocks, to aid profitability. Besides, we expect better balancing of upstream and downstream facilities upon commissioning of hot strip mill (HSM) and slab-caster at Angul. We introduce FY25E numbers at this stage and roll over valuations accordingly," it said.
Motilal Oswal Securities said the impairment was one-off, which may not continue in the near to medium term. It said coking coal has cooled off substantially in April and May, which should benefit Jindal Steel from the September quarter onwards.
"Once the pellet plant, HSM facility and Utkal C coal block are fully operational, they could give strong benefits, which would materially flow from FY24 onward. We maintain our BUY rating on JSP with a revised target of Rs 650, based on 5.5 times FY24E EV/Ebitda . We believe Jindal Steel's focused approach on leverage, along with capacity expansion, should augur well," it said.
Jindal Steel said it cut its net debt by Rs 1,923 crore in FY23 to Rs 6,953 crore as of March 31.
Kotak Institutional Equities said domestic steel prices have corrected by 3-4 per cent in the past one month and that it expects a further correction.
That said, price pressure should get partly offset by cost deflation in iron ore and coal prices with some lag, Kotak said adding that Jindal Steel's capacity expansion and cost-saving projects are witnessing 3-6 months delay mainly due to regulatory approvals. This brokerage has a target of Rs 580 on the counter.
Nuvama Institutional Equities expects some weakness in short-term earnings amid lower volumes and prices, partially offset by softening raw material costs.
Though commissioning of Jindal Steel's plants is seeing a slight delay, a majority is expected to be commissioned within FY24, Nuvama said.
"We keenly await final approval to start coal mines. Retain ‘BUY’ with a revised target price of Rs 737 from Rs 688 earlier, rolling over to FY25E earnings, valuing at 5.5 times EV/Ebitda, it said.
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