Buy This Multibagger Metal Stock 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 active in the metal industry. With a capacity of 1.1 million tonnes per year, the company is India's largest stainless steel producer. The company's stock soared from Rs. 70.25 on March 1, 2021 to Rs. 189.20 on February 25, 2022, 3:30 p.m. IST, generating a multibagger return of +118.95 (169.32 percent) in a year. On a year-to-date (YTD) basis, the stock is down by -6.40 (-3.27 percent), but it is up by +42.60 (29.06 percent) in the previous six months. In the last month, the stock has dropped -14.90 (-7.30 percent), but it has risen +0.75 (0.40 percent) in the last five days and +12.55 (7.10 percent) in Friday's closing session. Following the company's strong performance in Q3FY22, domestic brokerage ICICI Securities has issued a buy call on the stock with a target price of Rs. 250 and a 12-month target period.

Q3FY22 results of Jindal Stainless Ltd (JSL) as per the brokerage

• During Q3FY22, JSL reported a consolidated topline of Rs 5670 crore, up 58% YoY and 13% QoQ, higher than our estimate of Rs 5006 crore.
• Consolidated EBITDA was at Rs 797 crore, up 68% YoY and 7% QoQ, higher than our estimate of Rs 740 crore. Consolidated PAT was at Rs 442 crore, up 160% YoY and 7% QoQ, higher than our estimate of Rs 408 crore.

Key investment rationale for JSL according to ICICI Securities

• 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 with 1.4x expansion of ferro chrome from 0.25 MTPA to 0.35 MTPA.
• The estimated total growth capex is ~Rs 2150 crore wherein melting capex is Rs 530 crore (to be completed by Q3FY23), downstream enhancement capex is Rs 1250 crore (to be completed by Q4FY23) and backward integration capex is Rs 315 crore (to be completed by Q3FY24). Quality lab and other balancing capex is Rs 55 crore.
• The company has indicated that FY22E EBITDA/tonne would be in a similar range to that reported during 9MFY22 (JSL standalone entity's 9MFY22 EBITDA/tonne was Rs 27354/tonne).

Buy for a target price of Rs. 250

The brokerage has claimed "Jindal Stainless' share price has given a return of ~173% in last 12 months (from ~Rs 75 in February 2021 to ~Rs 205 in February 2022). We maintain our BUY rating on the stock. We value JSL at Rs 250, based on a merged entity basis."

According to the brokerage, the stock's key risks include a sharp increase in raw material costs and a slowdown in demand growth, which investors should be aware of.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.