Jindal Steel shares slip post earnings, but analysts maintain positive view

Shares of Jindal Steel and Power saw their sharpest fall in more than three months on Wednesday post weak earnings for the March quarter, but analysts have maintained their positive view for the company given its strong balance sheet and prospects of improvement in profitability over the medium term.

After hitting a low of 530.30 rupees intraday, shares of the steelmaker ended at 531.60 rupees on the National Stock Exchange, down more than 5% from the previous close. The shares closed at their lowest levels since late March.

Jindal Steel’s consolidated adjusted operating profit of ₹2,240 crore for the March quarter fell short of analysts’ estimates due to higher costs of iron ore and an inventory write-off, which weighed on its bottomline as well. It, though, managed to bring down its net debt by ₹1,923 crore during the year to a 15-year low of ₹6,953 crore, as on March-end, while the net debt to operating profit ratio was at 0.7 times.

This has given analysts the confidence that the company’s balance sheet will remain robust even in adverse market conditions, while the company embarks on an ambitious capacity expansion plan.

“We believe future cash flows would be sufficient to fund the ongoing capex of ~INR150bn spread across FY24E-27E. We expect JSPL will not breach net debt/EBITDA of 1.5x even during its down cycle, implying that JSPL may refrain from big acquisitions,” Nuvama Institutional Equities said.

Jindal Steel is planning to raise its production capacity to nearly 16 million tonne by 2024-25 (Apr-Mar) from 9 million tonne currently to strengthen its foothold in flat steel products. It plans to spend ₹5,600 crore on capital expenditure both in FY24 and FY25, and ₹3,600 crore in FY26.

Multiple growth and margin accretion projects, which are scheduled to commission in the next 12-24 months, meanwhile, are also seen aiding the company’s earnings from the second half of this year, Kotak Institutional Equities said.

These include the progressive operationalisation of the company’s coal blocks which will drive raw material security, the- commissioning of the 6 million tonne pellet plant and slurry pipeline and value addition from the hot strip mill.

These upcoming cost efficiencies will also help Jindal Steel in a touch macro environment of subdued steel prices, ICICI Securities said. It sees enough headroom on the company’s balance sheet for the competition of its ongoing capital expenditure at Angul.

Data from Bloomberg showed that 17 analysts have a ‘buy’ rating for the shares, while 4 have a ‘hold’, and 5 have rated the shares a ‘sell’.

“With a strong balance sheet to support growth, increasing raw material security, and low cost of production, JSP remains well positioned to withstand cyclical challenges,” JM Financial Institutional Equities said.