Buy This Multibagger Small Cap Metal Sector Stock For 17% Gains As Suggested By ICICI Securities

ICICI Securities has given a buy call on Jindal Stainless Limited for a target price of Rs 180 per share. The brokerage sees a potential upside of 17% from the current with the given target price. It is a small-cap metal sector company. JSL recently announced their Q2FY23 results. The company's Q2FY23 performance was ahead of street estimates.

 Stock Outlook & Return in past 5 years

On Friday, 04 November 2022, the stock last traded at Rs 153.85 per share, gaining 3.46% compared to its previous close of Rs 148.70 per share. The stock recorded its 52 week high on 8 February 2022 at Rs 224.40, and its 52 week low on 20 June 2022 at Rs 95.05, respectively.
 
The shares in the 5-day have jumped 11.08%. The stock in the past 1 month has given 17.58% positive returns and 30.11% positive returns in 3 months. It has given 20.24% negative returns in the past 1 year. Whereas, over the past 3 years, the stock has given 299.61% multibagger returns. Whereas, in the 5 years, the stock has given 31.22% positive returns on investments.

Good performance in a challenging quarter

JSL's Q2FY23 EBITDA was Rs4.1bn (down 42% YoY, 21% QoQ).

Here are the Key points:

1) Despite continued influx of imports, sales volumes were up 5% YoY (14% QoQ) to an unprecedented high of 273.4kte.

2) Domestic sales volumes grew 30% YoY (45% QoQ) to constitute 95% of overall sales as export duty dried up exports.

3) Blended realisation was down 11% QoQ as the company focused on low-priced hollow-ware segment to boost volumes.

4) RM cost/te was up 14% YoY (down 5% QoQ), resulting in standalone EBITDA/te declining by 45% YoY at ~Rs15,220 - lowest since Q1FY21.

5) Pverseas subsidiaries posted loss of Rs529mn at EBITDA level possibly due to inventory write-down.

"Going ahead, we expect better days as costs have likely peaked off and volume uptick is visible. Hence, we see little risk to management guidance of EBITDA at Rs18,000/te and expect standalone volumes to be similar to last year," the brokerage has said.

Plethora of positives in store

The brokerage said, "We see a number of positives for the company through to FY24E. The pace of capex (Rs9.7bn in H1FY23 vs Rs7.7bn in FY22) has picked up, indicating that the ongoing brownfield expansion is on track. Additionally, the merger with JSHL would broaden the range of products and propel the company to top-3 position in flat stainless steel products globally, ex-China. Furthermore, the integration of JUSL will likely usher in cost synergies resulting in EBITDA/te regaining Rs21,500/te level by FY24E in our view."

Outlook & valuations - Primed for growth

Commenting on the valuation of the stock, ICICI Securities said, "Despite significant headwinds from export duty and influx of imports, we find the all-time high level of sales volume impressive. Besides, we expect progressive improvement in profitability as costs have likely peaked off. That said, factoring-in the adverse macro, we value the JSL stock at 5x FY24E EBITDA resulting in a target price of Rs180. Reinitiate with BUY."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.