Jindal Stainless (Hisar): Focus on value

Strong demand outlook and diversified product mix are positives for the company

In the underpenetrated stainless steel market in India, Jindal Stainless (Hisar) Limited (JSHL) is well-placed to reap the benefits of a growing segment. JSHL comes under Jindal Stainless group.

With strong demand outlook for stainless steel and the company’s focus on value-added and specialty products, the prospects for JSHL look impressive.

At the current market price of ₹132, the stock is reasonably valued at about six times its trailing 12-month earnings, lower than what it traded at, on an average, over the past three years — 33 times. The high valuation in the previous years could be due to weak earnings caused by muted traction in the steel industry.

The stock has fallen over 25 per cent over the last one year, presenting a good buying opportunity for long-term investors.

Robust outlook

India has been the second largest producer of stainless steel in the world in the past couple of years. It produced nearly 7 per cent (3.4 million tonne) of the world’s steel in 2017 with a 5 per cent increase in volume from the previous year. The per capita consumption of stainless steel in India (2 kg) is way lower compared to the global average of 5 kg, providing scope for healthy demand.

In FY18, JSHL produced 6,97,545 tonnes (rise of 5 per cent Y-o-Y) of stainless steel, close to 20 per cent of India’s total production of the metal. The company’s sales have also risen by a healthy 13 per cent, indicating increased demand for the metal.

JSHL is an integrated stainless steel manufacturer with a production capacity of 0.8 million tonnes per annum, with manufacturing facilities at Hisar, Haryana and Visakhapatnam, Andhra Pradesh.

The company’s main customers are the Railways, auto, pipes and tubes, architecture, building and construction, and industrial applications firms.

Government initiatives such as smart cities, expansion and modernisation of Railways, the proposed Bharat-VI norms in the automotive sector and airport modernisation, are expected to boost the demand for stainless steel in India.

Also, the government has mandated use of stainless steel in specific areas through the 2017 National Steel Policy, recognising the life-cycle cost and safety advantages of stainless steel.

As per reports, over the past two decades, Indian stainless steel consumption has moved away from the most primary usage in cookware/durable to new value-added categories of architecture, building, construction and process industries.

CRISIL expects stainless steel demand to grow by 8-9 per cent CAGR over the next five years.

Value-added products

JSHL holds a significant portion of the specialty products market, especially blade steel, coin blanks, specialty precision products, Defence and automobiles, in India. JSHL’s subsidiary, JSL Lifestyle Limited, provides customised and value-added products for infrastructure, Railways, modular kitchens and prefabricated structures.

The brands — Arttd’inox, Krome and ARC — which are providing a competitive advantage to JSHL fall into the umbrella of this subsidiary.

This company registered 83 per cent increase in net sales (₹356 crore) in FY18 over the previous year. This indicates strong demand and improved realisations for value-added and specialty products.

The company’s focus on downstream value-added products, which claims premium over other products, and diversifying product mix are expected to drive its growth, going ahead.

Steady financials

The company has reported steady earnings and has been profitable at operating level even in turbulent times. In FY18, the consolidated revenue grew by 24 per cent over the previous year to ₹10,563 crore.

Operating and net profit surged by 26 per cent and 102 per cent to ₹1,230 crore and ₹588 crore respectively.

 

The improvement was on the back of higher volumes, better product mix and superior operational efficiencies.

Risks

The ongoing trade war and dumping of imports from countries that have signed FTA agreements may exert pressure on the prices which could affect the profitability of the company.

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