On Thursday, Nomura/Instinet initiated coverage on Jindal Steel & Power (JSP:IN) stock with a Buy rating and set a price target of INR1,200.00. The firm highlighted several key growth drivers for the company, including significant capacity expansion, improved raw material integration, and potential cost reductions from new operational plants.
The report details Jindal Steel & Power's plan to add 6.3 million tonnes (MT) to its production capacity by the fiscal year 2027, representing an 18% compound annual growth rate from fiscal year 2024 to 2027. This expansion is expected to increase the company's volume mix of flat products from less than 20% in fiscal year 2023 to around 65% post-expansion.
Additionally, Nomura/Instinet notes the strategic benefit of Jindal Steel & Power's newly acquired thermal coal mines, which are anticipated to satisfy 100% of the company's raw material requirements. This vertical integration is poised to enhance the firm's operational efficiency.
The commissioning of pellet and captive power plants is also projected to contribute to cost reductions for Jindal Steel & Power. The analyst's forecast for the company's fiscal year 2025 EBITDA aligns with the Bloomberg consensus, but stands 15% higher for fiscal year 2026, anticipating stronger domestic demand and improved export spreads for China's hot-rolled coil (HRC).
Nomura/Instinet's price target of INR1,200 for Jindal Steel & Power is based on a one-year forward EV/EBITDA multiple of 7.6x, which is notably higher than the historical mid-cycle multiple of 6.0x applied to the company's forecasted fiscal year 2026 EBITDA. The report does acknowledge potential risks, including delays in expansion, capital expenditure overruns, lower spreads, and demand disruptions, which could impact the company's performance.
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