Indian Infrastructure Expansion Will Drive Future Stainless Steel Demand

Key Takeaways

• Domestic consumption growth, driven by infrastructure projects, presents a strong revenue catalyst, while targeting niche markets can enhance international sales and margins.
  
• Operational boosts from Chromeni and the NPI project, coupled with renewable energy use, may lead to improved earnings stability and cost reductions.
  
• Reliance on strong domestic demand is crucial amid export challenges, but competitive imports, regulatory risks, and financial strain could impact revenue and profitability.

Catalysts

Manufactures and sells stainless-steel flat products in India and internationally.

• The increasing domestic consumption of stainless steel in India, driven by infrastructure projects and process industry demand, is a strong growth catalyst that can boost future revenue.
  
• Efforts to mitigate export challenges by targeting niche markets such as lift and elevator, auto, and metro segments may enhance international sales and improve net margins.
  
• The commencement of operations at the Chromeni facility, which boosts cold rolling capacity, is expected to improve overall sales and positively impact earnings.
  
• Progress in the NPI project in Indonesia, providing raw material security and likely cost benefits, could lead to more stable net margins.
  
• Increased use of grid-sourced renewable energy at the Hisar plant and rising ESG ratings may reduce operational costs and improve net margins in the long term.

Jindal Stainless Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jindal Stainless's revenue will grow by 17.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.3% today to 9.0% in 3 years time.
• Analysts expect earnings to reach ₹55.8 billion (and earnings per share of ₹67.45) by about April 2028, up from ₹24.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹70.8 billion in earnings, and the most bearish expecting ₹35.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, down from 19.1x today. This future PE is lower than the current PE for the IN Metals and Mining industry at 20.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.67%, as per the Simply Wall St company report.

Jindal Stainless Future Earnings Per Share Growth

Risks

• The ongoing geopolitical disruptions and declining demand from Western countries have led to subdued export volumes, impacting export margins and overall earnings.
  
• Reliance on strong domestic demand is crucial, but pressure from low-priced imports and weak regulatory actions on safeguard duties remain risks that could affect revenue.
  
• Although JSL's debt levels are manageable, further capital expenditure and acquisition costs might strain financial resources, possibly impacting net debt levels and earnings stability.
  
• The underperformance in the export segment and nickel price volatility may affect both operational costs and earnings from the Indonesian investment, influencing overall profitability.
  
• The competitive pressure from Chinese imports continues to be a significant threat to local pricing and margins, potentially affecting the revenue growth trajectory.

Valuation

• The analysts have a consensus price target of ₹780.6 for Jindal Stainless based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹920.0, and the most bearish reporting a price target of just ₹655.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹622.3 billion, earnings will come to ₹55.8 billion, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 14.7%.
• Given the current share price of ₹558.7, the analyst price target of ₹780.6 is 28.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.