Buy this stock metal multibagger for a target price of Rs. 250 in 1 year
Jindal Stainless Ltd (JSL), a small cap company with a market capitalization of Rs. 8,907.98 Cr, is engaged in the metal industry. With a capacity of 1.1 million tons per year, the company is the largest stainless steel producer in India. Shares of the company fell from Rs. 70.25 on March 1, 2021 to Rs. 189.20 on February 25, 2022, 3:30 PM IST, delivering a multibagger return of +118.95 (169.32%) in one year. Year-to-date (YTD), the stock is down -6.40 (-3.27%), but it is up +42.60 (29.06%) in the prior six months . Over the past month, the stock has fallen -14.90 (-7.30%), but it has risen +0.75 (0.40%) over the past five days and +12.55 (7.10%) in Friday’s closing session. Following the company’s strong performance in Q3FY22, national brokerage firm ICICI Securities issued a call to buy on the stock with a target price of Rs. 250 and a target period of 12 months.
Jindal Stainless Ltd (JSL) Q3FY22 Results by Brokerage
- In the third quarter of FY22, JSL reported consolidated revenue of Rs 5,670 crore, up 58% YoY and 13% QoQ, above our estimate of Rs 5,006 crore.
- Consolidated EBITDA was Rs 797 crore, up 68% YoY and 7% QoQ, above our estimate of Rs 740 crore. Consolidated PAT was at Rs 442 crore, up 160% YoY and 7% QoQ, above our estimate of Rs 408 crore.
Main investment justification for JSL according to ICICI Securities
- JSL increases its stainless steel smelting capacity from 1.1 million tonnes per annum (MTPA) to 2.1 MTPA and also improves downstream capacity with a 1.6x expansion of Hot Rolled Annealed Pickling (HRAP) from 0.8 MTPA to 1.25 MTPA and a 1.7x expansion of cold rolled annealed pickled (CRAP) from 0.45 MTPA to 0.75 MTPA. It also extends backward integration with a 1.4x expansion of ferrochrome from 0.25 MTPA to 0.35 MTPA.
- Estimated total growth capex is around Rs 2150 crore, where merger capex is Rs 530 crore (to be completed by Q3FY23), downstream enhancement capex is Rs 1250 crore (to be completed by Q3FY23). here on Q4FY23) and the backward integration capex is Rs 315 crore (to be completed completed by Q3FY24). The quality lab and other balancing investments are Rs 55 crore.
- The company said EBITDA/tonne for FY22E would be in a similar range to that reported in FY9MFY22 (JSL stand-alone entity EBITDA/tonne for FY9MFY22 was 27 354 rupees/ton).
Buy for a target price of Rs. 250
The brokerage claimed that “Jindal Stainless” share price has returned around 173% over the past 12 months (from ~Rs 75 in Feb 2021 to ~Rs 205 in Feb 2022). We maintain our buy rating on the stock. We value JSL at Rs 250, on a merged entity basis.”
According to the brokerage, the main risks to the stock include a sharp rise in commodity costs and slower demand growth, which investors should be aware of.
The security was selected in the brokerage report of ICICI Securities. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author, and the brokerage are not responsible for any losses caused as a result of decisions based on the article.
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Article first published: Saturday, February 26, 2022, 5:28 p.m. [IST]