Indian markets have corrected sharply and on a YTD basis Nifty index is down by over 6%. On the correction, some of the stocks can be bought for good gains based on stock specific financials and fundamentals.
Jindal Stainless (Hisar) (JSHL): Buy for a target price of Rs. 439/ Potential upside of 37%
It is amongst the top entities in the Indian stainless steel market. The stock has been recommended as a 'Buy' by ICICI Direct for a price target of Rs. 439 for 12 months. The company's scrip last traded at a price of Rs. 320.35, implying potential gains of 37% to investors.
As per the brokerage, the company reported a strong performance in Q4Fy22, with consolidated topline of Rs. 4318 crore, up 39% YoY and 3% QoQ, higher than the brokerage's estimate of Rs. 4032 crore. Consolidated EBITDA was at Rs. 605 crore, up 49% YoY, 6% QoQ, again higher than its own estimate of Rs. 572 crore. Consolidated PAT was at Rs. 575 crore, up 64% YoY and 12% QoQ.
JSHL's share price has given a return of about 101% over the last 12 months (from around Rs. 164 in May 2021 to around Rs. 329 levels in May 2022). "We maintain our BUY rating on the stock and value JSHL at Rs. 439, based on merger ratio", mentions the brokerage.
With respect to the precision strip division, JSHL has recently commissioned the first phase of expansion wherein the precision strip capacity has been expanded from 22000 tonnes per annum (TPA) to 48000 TPA. Going forward, after the second phase, precision strip capacity would be further expanded to 60000 TPA (from 48000 TPA) which would be completed by Q4FY23. The total capex for both phases is Rs. 250 crore. JSHL is also expanding blade steel capacity from current capacity of 14000 TPA to 24000 TPA in two phases at a total capex of Rs. 200 crore for both phases.
On the merger update the brokerage has said that "Shareholders and creditors of JSL and JSHL approved the "Scheme of Arrangement" for the merger between two companies on April 24, 2022. The companies will now file the second motion petition with NCLT.
Jindal Stainless: Buy for Rs. 225 target price
Buy Jindal Stainless shares for Rs. 225 target price for 12 months suggest ICICI Direct. At the current price of Rs. 164.25 would mean gains to the tune of 37%. The company is the country's largest stainless steel producer. The brokerage mentions that the company has readily leveragable infrastructure for cost efficient
On the Q4 performance, ICICI Direct views the company to report robust performance. Its consolidated topline came in at Rs. 6564 crore, up 68% YoY and 16% QoQ. Consolidated EBITDA for the quarter was at Rs. 842 crore, up 55% YoY and
6% QoQ, higher than the brokerage's estimate of Rs. 804 crore. Also on a consolidated basis, JSL reported a net tax credit of around Rs. 31 crore compared to our estimate of tax expense of Rs. 219 crore.
Hence, ensuing consolidated PAT for Q4FY22 was at Rs. 750 crore, up 156% YoY and 70% QoQ, higher than our estimate of Rs. 453 crore
The company's shares in a year's time have zoomed by around 84% from around Rs. 90 in May 2021 to around Rs. 166 in May 2022. "We maintain our BUY rating on the stock and value JSL at Rs. 225, based on a merged entity basis", the brokerage iterated.
Expansion across value chain and merger to boost the company's performance going ahead
"JSL is augmenting its stainless steel melt capacity from 1.1 million tonnes per annum (MTPA) to 2.1 MTPA and also enhancing downstream capacity
with 1.6x expansion of hot rolled annealed pickled (HRAP) from 0.8 MTPA to 1.25 MTPA and 1.7x expansion of cold rolled annealed pickled (CRAP)
from 0.45 MTPA to 0.75 MTPA. It is also expanding backward integration. The estimated total growth capex cost is around Rs. 2150 crore", notes the brokerage.
Also shareholders and creditors of JSL and JSHL approved the"Scheme of Arrangement" for the merger between two companies on April 24, 2022.
The two stocks mentioned in the story are taken from the report of ICICI Direct. Investing in equities is risky, so do engage in your own analysis before betting on any market linked security.