JTL Industries Gets Buy Call For TP of Rs 265 After FIIs Raises Stake In Q2: Here’s Why

JTL Industries is a capital goods firm with a small market capitalization. It is a top producer of ERW steel tube pipes. Backed by the Singla family of Chandigarh, JTL produces ERW black pipes as well as value-added products like solar module mounting structures, galvanised steel pipes, and large-diameter steel tubes and pipes. These products are made in 4 cutting-edge facilities with an aggregate manufacturing capacity of 5,86,000 TPA.

Although the stock has gone up by more than 30% year to date, brokerage Axis Securities believes there is still scope for growth in the stock BUY rating on account of capacity ramp up ahead and has initiated a buy call with a target price of Rs 265 a share, which represents a potential gain of 29.26% from the current market price of Rs 205.

Key Rationale To Buy The Shares of JTL Industries

According to Axis Securities, here are the key rationale to buy the shares of JTL Industries.

Capacity expansion and value growth plans

JTL is planning to expand its capacity from the current 0.586MT to 1MT by FY25 and it will be enhancing its VAP share from the current 31% in FY23 to 50% by FY25. JTL will add an additional 0.2MT capacity each at Mangaon and Raipur by the end of FY25 and 14kt at Mandi (by Q1FY24) which will take its total capacity to 1MT by FY25.

Out of the incremental 0.4MT capacity in the next two years, ~50% of the capacity will be equipped with DFT (Direct Forming Technology) which will facilitate the company to produce various sizes of hollow sections without roll change, increasing efficiency and capacity utilization. This will also add additional SKUs to the company's portfolio. In the long term, JTL plans to add another 1MT capacity post FY25 which will bring its total capacity to 2MT by FY28.

Wide distribution reach through strategically located plants

JTL has four state-of-the-art manufacturing facilities dispersed geographically across India. This allows the company to source raw materials at competitive prices as well as enable it to expand its sales and footprint in domestic and international markets. It has two plants in Punjab i) Gholu Mazra (Near Chandigarh), with a capacity of 0.1MTPA, ii) Mandi Gobindgarh (Punjab), with a capacity of ~0.2MTPA.

One plant in Mangaon (Maharashtra) with a capacity of 0.2MTPA, which gives it access to the port for exports. It also has one plant in Raipur which it recently got through amalgamation with its promoter-held Chetan industries. The Raipur plant has a capacity of 0.1 MTPA and it gives the company access to the East Indian market.

Stable operating profits and returns during the expansion phase

JTL's Revenue/EBITDA/PAT grew by 14%/45%/48% YoY in FY23 on the back of capacity expansion. While its ROE/ROCE moderated to 29.6%/22.1% in FY23 from 40.7%/31% in FY22, they were still at a healthy level given its expansion phase. The EBITDA/t improved by 30% to Rs 5,383/t in FY23. The company is funding the growth Capex by raising share warrants and targets a debt-free status by FY25.

Sales Volume growth continues

JTL reported good growth in sales volume in Q2FY24 at 81.7kt (up 57%/6% YoY/QoQ), and management expects to achieve sales volume of 3.3 Lc tonnes for the full year FY24 (37% growth YoY).

JTL Industries Share Price Target

"With the phase-wise volume expansion in progress, we model Revenue/EBITDA/PAT CAGR of 46%/45%/51% over FY23/25E. We maintain our BUY rating on the stock and value JTL at 23x it's FY25 EPS to arrive at our 1-year forward target price of Rs 265/share," said Axis Securities in a note.

JTL Industries Financials

JTL Industries' net profit jumped by 34% year on year (YoY) to Rs 27.91 crore in the September 2023 quarter from Rs 20.90 crore in the same period the previous year. The firm recorded a total income of over Rs 505 crore in Q2FY24, up 37% year on year (YoY) from Rs 367 crore in Q2FY23. For the half year that ended on September 30, 2023, JTL's net profit rose by almost 52% to Rs 53.28 crore from Rs 32.98 crore in H1FY23. During the first half of the current fiscal year, the company's revenue was Rs 1,006.96 Cr up by 37% from H1FY23.

JTL Industries Shareholding Pattern

In Q2FY24, the firm recorded 55.78% of its shares held by promoters, 2.35% by FIIs, 1.07% by DIIs, and 40.81% by the general public. Trendlyne data shows that promoters' holdings dropped from 56.20% in the June 2023 quarter to 55.78% in the September 2023 quarter; FII/FPI's holdings rose from 0.72% in the Q1FY24 to 2.35% in the Q2FY24; mutual funds' holdings bumped from 0.69% to 0.72%; and institutional investors' holdings risen from 1.42% to 3.42%.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.