Jindal Stainless' Q3FY20 results (Outperformer) - Volume growth continues; deleveraging on
Q3FY20 result – Volume led EBITDA growth
- Jindal Stainless (JSL) reported in-line consolidated EBITDA of R2,996m, down 5.9% qoq, primarily due to lower realisation (IDFCe: Rs2,863m).
- Standalone EBITDA of Rs3,025m, down 4.6% qoq (up 33% yoy) despite 2.6% qoq growth in volumes to 0.239mt (up 17.2% yoy). This was primarily due to lower realisation (Rs132,857/t, down 2.2% qoq). Realisations were lower due to higher export volumes share (21.5% vs 20.0% in Q2).
- JSL sold ~187,914t in domestic market (up 12.2% yoy/1% qoq) and ~51,369t in export market (up 40% yoy/10% qoq).
- Decline in realisation was partly offset by lower operating costs (lower by ~Rs1,100/t). As a result, EBITDA/t stood at Rs12,640/t, down 7% qoq.
- Subsidiaries reported EBITDA loss of Rs28m vs EBITDA of Rs14m in Q2FY20.
- Adj. PAT of 274m, down 17% qoq.
- Standalone net debt reduced by Rs2.3bn qoq to Rs36bn.
Key Positives: Higher volumes, lower cost, reduction in debt
Key Negatives: Lower realisation
Valuation & view- Reiterate OP with TP of Rs63
JSL continues to deliver volume growth in domestic (12% yoy) as well as export market (40% yoy/ 10% qoq) implying firm stainless steel demand. We expect JSL to achieve 9% volume CAGR over FY19-21e to 1.0mt to drive 7% EBITDA to CAGR to Rs13.4bn. As a result, we expect JSL to deleverage its Balance Sheet by Rs10.1bn (Rs22/sh) over FY19-21e to Rs33.4bn. Major lenders (having shares pledged) selling their stake to funds reduces the risk of offloading shares in open market. Refinancing of OCRPS (Rs7.6bn) would remove the risk of equity dilution which needs to be done before Oct 2020. Imposition of anti-dumping duty (ADD) on imports from Indonesia and other FTA countries (investigations going on) would be beneficial for JSL. This is because imports surged 82% yoy to 0.64mt in 9MFY20 largely contributed by Indonesia and hampers overall profitability of JSL. We value JSL at 5.0x FY21E EV/EBITDA to arrive at our target price of Rs63/sh. Reiterate outperformer.​
Jindal Stainless is a stainless steel production company based in India. At Hisar, Co.'s composite stainless steel plant manufactures stainless steel slabs, blooms and hot rolled and cold rolled coils, 40% of which are exported worldwide. Co. produces stainless steel precision strips in various grades. These strips are produced in narrow 20-Hi mills in the precision cold rolling unit. Co. is the exclusive producer of stainless steel strips for making razor and surgical blades in India. Besides supplying CR Strips to the Government of India, the plant at Hisar houses a coin blanking line for supply of coin blanks to the Indian Mint and Mints in the global markets.
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