Jai Balaji shares: After 2,400% rally in 1 year, this stock plunged 28% in March; what analysts say after plant visit

Jai Balaji Industries Ltd, whose shares rallied about 2,400 in a span of one year, is in a bear grip. The stock has plunged 28 per cent in March and 30 per cent from its recent high amid an across-the-board selloff in midcap and smallcap shares. A couple of brokerages, which do not have any rating on Jai Balaji Industries, recently visited the company's plant at Durgapur, West Bengal, and observed its fully integrated operations for manufacturing DI Pipes, TMT bars and Ferro Alloys.

Post its visit, Axis Securities called Jai Balaji a turnaround story. The stock, which rallied about 2,400 per cent in 12 months, has fallen 30 per cent from its recent high of Rs 1,307 on February 27. On a trailing 12-month basis, Jai Balaji shares are trading at a PE of 27 times and EV/Ebitda of 21 times.

Axis Securities said Jai Balaji Industries will enhance its DI Pipes capacity from  0.24 mtpa to 0.66 mtpa and Ferroalloys capacity from 0.13 mtpa to 0.19 mtpa by FY25. The  capex will be funded internally and as the project is to be a brownfield project, the capex  intensity will be lower, it said,

"The total capex plan is of Rs 1,000 crore, out of which Rs 500 crore is already  spent and the balance will be spent in the next 12-15 months. Beyond the existing Rs 1,000 crore capex, the company does not have any plans to announce further expansion. Its focus is to stabilise the new expansion and get the ROI on it. The company’s strategy is to get net debt-free  in the next 18 months. It has a target of achieving a top line of Rs 10,000 crore by FY26 (Rs 4,568  crore in 9MFY24) and Ebitda margin of 18-20 per cent by FY26 (15 per cent margin achieved in 9MFY24)," Axis Securities said.

The Jai Balaji Industries management has a strong stand to not raise debt and grow through internal accruals, said YES Securties. The company has taken significant debt reduction initiatives over the recent years. Net debt stood at Rs 3,407.90 crore in FY21, which is now at Rs 566.50 crore level. The company is aiming to be a net cash company over the next 12-15 months, the brokerage said.

At present, the debt outstanding has been refinanced from Tata Capital Financial Services with a pledge of the shareholder’s stake. The management guidance is to maintain the net debt/Ebitda at 0.6 times as of March 2024.

Jai Balaji will be focusing on three main value-added products – TMT Bars, DI Pipes and Specialized Ferro Alloys.

"Currently, the share of VAP in total revenue stands at 55 per cent and the management aims to bring these up to 75-80 per cent as the VAP attracts higher pricing as well as EBITDA margins. Through TMT Bars and DI Pipes, JBIL wants to be placed on capturing the domestic market. Whereas the Specialized Ferro Alloys is a key product catering to the export markets completely. Currently JBIL is exporting to 40 countries and meeting the requirements of each in terms of carbon content and increased chromium value in the alloys. We see the ferro alloys division to be a key driver for JBIL’s future as it’s an industry with very few competitors and requires higher technical expertise to produce the low carbon ferro alloys," YES Securities said.

Smallcap stocks

ICICI Securities said the bull market corrections in Nifty Midcap and small cap indices -- empirically over two decades, tend to be average 12-15 per cent. In current context, these indices have corrected 9 per cent and 16 per cent already.

 

"We believe much of price correction is behind us and expect these indices to undergo a base formation over next few weeks. Post recent correction many quality companies have approached their key support. Investors should focus accumulating quality stocks from long term perspective," it said.