Kotak Institutional Equities has upgraded shares of Jindal Steel and Power to ‘buy’ from ‘reduce’ and also raised its fair value to Rs 740 from Rs 580.
“A sector-leading growth profile along with the strongest balance sheet makes a strong case for re-rating,” the brokerage firm said.
At 9:15am, the stock opened 5.8 percent higher at Rs 576.55 on the BSE.
The brokerage firm has compared the four listed integrated steel companies over 10 metrics, covering operational and financial parameters, and finds Jindal Steel and Power best-placed among its peers.
Seeing Jindal Steel and Power having the best risk-reward ratio among peers in its coverage, Kotak Institutional Equities said, “We see a potential 100 percent return in three years on March 2027 (earnings) basis.”
The brokerage firm has estimated a compounded annual growth rate of 19 percent and 17 percent in EBITDA over the next 3 and 5 years, respectively, and an EPS growth of 33 percent and 27 percent over the next 3 and 5 years.
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Here’s what the brokerage says about JSPL:
Growth projects to lift volumes
The company’s expansion projects totalling about Rs 24,000 crore, announced in May 2021, will gradually be commissioned from October 2023 which will aid earnings from the second half of FY24. These expansion projects - capacity expansion, backward integration, and forward integration - will help in volumes and upgrade of product mix.
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Expansion projects to boost margin
The ongoing expansion projects of Jindal Steel and Power will improve forward-backward integration and potentially elevate margins by approximately Rs 4,000 per tonne at full capacity.
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Leverage to remain low
Despite a step-up in capex growth, internal accruals should keep net debt/EBITDA (earnings before interest tax depreciation and amortisation) of less than one time over FY24-26 with peak at 0.8 times in FY25.
The brokerage firm has estimated a capital expenditure of Rs 27,000 crore over FY24-26, which is Rs 6,000-7,000 crore higher than the company’s announced capex plan. It is of the view that the ongoing expansion projects will start earning contribution from the second half of FY24.
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