Emkay Global Financial's report on Jindal Stainless
JSL announced the issuance of equity convertible warrants to tide over working capital shortfall as it is under moratorium and does not expect banks to extend additional loan in near term. The company needs cash immediately as it ramps up plant utilization. The warrants are priced at Rs42.55/share, a discount of 16.8% to yesterday’s closing price. The warrants will be subscribed to by the promoters (89%) and Kotak Special Situations Fund (11%). 33% of the issue is payable upfront and balance will be due in 18 months. The equity infusion by promoters is generally a sign of confidence in the company, but the pricing has caught us by surprise. The discount to the CMP should cap near-term upside. The QIP results in 7.9% EPS dilution; promoters’ stake will rise from 68.12% to 69.87%.
We are constructive on SS demand in India due to increasing urbanization and government support to the domestic industry. We increase our target multiple from 4x to 4.5x Mar-22E and raise our TP from Rs42 to Rs52. But at the CMP, the near-term upside looks capped. Downgrade to Hold. Key risk is a slide in SS prices.
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