Analysts at SBI Securities have selected Jindal Saw Ltd shares as their "pick of the week". The domestic brokerage has recommended a 'Buy' call on the counter with a target price of Rs 784.3, hinting at a potential upside of 13.69 per cent over Friday's closing price of Rs 689.85.
During intraday deals, Jindal Saw rose 3.33 per cent to hit a 52-week high of Rs 710.65 after the company's board approved a stock split in a 2:1 ratio. It eventually gave up a major chunk of its gains and settled 0.31 per cent higher. The mentioned stock-split exercise will be completed by November 30, 2024.
SBI Sec has shared five reasons for buying the steel manufacturer's stock. First, it said the company's has well-diversified product portfolio. "The company has a healthy product portfolio with presence across major segments of the pipe industry such as LSAW pipes, HSAW pipes, DI pipes, seamless pipes & tubes, anti-corrosion coated pipes, hot-pulled induction bends etc. It has a well-balanced revenue model with no single product contributing more than 30% of total revenues," the brokerage stated.
The second reason was Jindal Saw's healthy order book. "The current order book for iron & steel pipes and pellets stands at $1.65 billion segregated as follows: 1) Iron & steel pipes - $1,632 million and b) Pellets - $15 million. It includes 32 per cent of orders from global markets which reflects good opportunities for exports. The order book gives a visibility of approximately three to four quarters. Order book break up is as follows: (a) Water: 70 per cent, (b) Oil & Gas: 25 per cent and (c) Others: 5 per cent," it also said.
The third reason was 'Sathavahana' business outlook. "For FY25, the company expects to supply 2,00,000 tonnes from Sathavahana at peak capacity utilisation. It plans to increase the capacity by 10 per cent-20 per cent through debottlenecking which will aid the company to add another 50,000 tonnes of sales volume next year," SBI Sec said.
The next reason was Jindal Saw's focus on value-added products. "Robust performance with margin improvement in Q1 FY25 came on back of increase in value-added products. Jindal Hunting Energy Services Ltd (JHESL) started its operations in Q3 FY24 and is currently running at 80 per cent-85 per cent of capacity utilisation. It turned profitable in Q1 FY25. The company is assessing new VAP to carter to India's Oil Country Tubular Goods (OCTG) segment," it also said.
The last reason that the brokerage suggested was the company's robust operating performance in the June 2024 quarter (Q1 FY25). "Consolidated Revenue/EBITDA/PAT up 12 per cent/38.2 per cent/70.5 per cent YoY at Rs 4,939.1 crore/Rs 839.6 crore/Rs 416.4 crore. EBITDA margin at 17 per cent vs 13.8 per cent YoY. Operational Highlights (Q1 FY25 vs Q1 FY24): (a) Production: (i) Iron & Steel Pipes: 4,39,000 vs 3,91,000 (+12 per cent YoY), (ii) Pellets: 4,26,000 vs 3,70,000 (+15 per cent YoY). (b) Sales: (i) Iron & Steel Pipes: 4,00,000 vs 3,69,000 (+8 per cent YoY), (ii) Pellets: 4,13,000 vs 3,93,000 (+5 per cent YoY) At the current price, the stock trades at EV/EBITDA of 8.7x/8.8x to its FY25E/26E Bloomberg consensus estimates," it further said.
SBI Sec also pointed out that the company's standalone debt increased from Rs 3,200 crore to Rs 3,900 crore due to increase in working capital requirement on back of ramping up operations and lock in raw materials at stabilised prices. Jindal Saw expects to pay off the long-term debt by FY26.
However, the brokerage did underscore fluctuation in commodity prices and adverse macro factors as key risks.