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Emkay Global
Jindal Stainless (Hisar) (Buy)
Target ₹109
CMP: ₹88.70
Q1 was significantly below our estimates; however, the management has highlighted that it has already achieved capacity utilisation close to 75 per cent in Q2, which implies a stronger-than-expected recovery.
A shift from Series 400 to Series 300 has resulted in higher ASPs. S300 is normally a lower segment compared to Series 400; hence, EBITDA margin in Q1 at ₹8,373/t (y-o-y/q-o-q: -46 per cent/-28 per cent) was 11 per cent lower than our estimate of ₹9,456/t.
Net debt has risen sequentially from ₹2,030 crore as at the end of Q4 FY20 to ₹2,240 crore as at the end of Q1 FY21. We expect the net debt to rise in FY21 but come off in FY22 as cash flows improve.
We raise EBITDA estimate for FY21/22/23 by 37 per cent/13 per cent/6 per cent respectively and increase our target multiple from 4x to 4.5x on improving outlook for the stainless steel industry in India.
The outlook for the industry has improved substantially in the last one month, as DGTR has recommended the imposition of CVD in the range of 22.65-24.83 per cent for imports out of Indonesia to protect the domestic industry injury arising from subsidised imports from that country.
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