Target: ₹200
CMP: ₹105.05
Jindal Stainless (JSL) management meeting takeaways include: exports can be maintained at 16,000 tpm (down from peak run-rate of 30,000 tpm) despite the export duty of 15 per cent, mainly on account of higher margins in the US; blast furnace capex in JUSL is being reconsidered; leverage, holding on to the environmental benefits of running a secondary steel operation and investor feedback has played its part in our view; merger of JUSL into JSL is also being considered in order to avoid the recurring need for approvals in AGMs, as well as the scrutiny on related-party transactions.
Given the current export run-rate, and post the imposition of export duty, the management expects 5-10 per cent year-on-year reduction in volumes, which we have factored in our estimates.
Removal of export duty (whenever it comes) will boost the business model. We are surprised at the management guidance of maintaining 50 per cent of peak export run-rate despite the duty. These measures expose volumes and margins to downside risks in our view.
With 50 per cent of JSL+JSHL volumes from the 300 series, there is a clear risk of increased Indonesian imports (anti-dumping duty was revoked in February 2022), thereby taking away JSL’s share of Indian volumes. JSL cannot compete with the Indonesian cost structure given its captive/merchant lateritic nickel ore.