In the past month, shares of Jindal Steel & Power (JSPL), a part of O.P. Jindal Group, have risen 44%. The stock has outperformed the BSE benchmark Sensex by 41% and index heavyweight Tata Steel by 26%.
The share price of steel and energy company hit a fresh 10-year high of ₹532.50 on Friday, driven by a strong rally in the recent past. The largecap stock has been rising for the last seven sessions and has rallied 16.5% during the same period. Market capitalisation currently stands at ₹53,942 crore.
On Friday, JSPL shares opened higher at ₹528.50 against the previous closing price of ₹521.60 on the BSE. In the first hour of trade, the stock gained as much as 2.09% to hit a record high of ₹532.5 amid a spurt in volume trade. The multibagger stock has rallied 79% over the past one year, rising from its 52-week low of ₹297.25 touched on March 25, 2021, to ₹532.50 in intraday trade today.
Brokerages remain bullish on stock
In its recommendation on the stock, domestic brokerage firm Motilal Oswal Securities has initiated a ‘buy’ call on JSPL, with a target price of ₹605 per share, an upside of 14.5% from the current level. “The stock trades at 3.6x/2.4x our FY23E/24E EV/EBITDA. We maintain our BUY rating with a TP of ₹605 premised on 5x FY23E EV/EBITDA,” the brokerage said.
“JSPL is the only company in our universe which offers strong volume growth, deleveraging, and increase in share of captive raw materials,” the report noted.
The agency, however, warned that sharp correction in steel prices if demand wanes at current price levels remains a key risk. Adding to it, steep fall in coking coal prices would also erode the benefits of captive coking coal mines, while slowdown in China remained a key concern on macro front, it added.
Another brokerage house, Centrum Broking has recommended a ‘buy’ call on the stock at a target price of ₹630. “With the proposed sale of power assets and operating profits, JSPL is well set to become a net debt-free company in FY23. Future capex can be funded via internal cash flows. We have not factored in any acquisition if it comes. Reiterate BUY with TP of ₹630, based on 5.5x average of FY23E/FY24E EV/EBITDA,” Centrum said in a report dated February 9, 2022.
JSPL aims to be net debt-free by FY23
The homegrown steel major aims to become net debt-free by FY2022-23. Earlier this week, its wholly-owned subsidiary in Mauritius prepaid $357 million to lenders. Jindal Steel & Power (Mauritius) plans to clear the entire debt in the coming quarters, JSPL said in an exchange filing on March 20.
Analysts at Motilal Oswal believe that a part of the debt was paid through cash in books, and hence, the total de-leveraging in the books would not be equivalent to the loan prepaid.
At the end of December quarter of 2021, JSPL Group's net debt has reduced from a peak of ₹46,500 crore to ₹10,981 crore and is further expected to come down to ₹5,000 crore by end of March quarter (Q4 FY22). The company wants to be completely debt-free by the end of FY23.
For the December quarter of 2021, the steel major reported a 33.5% fall in consolidated profit at ₹1,621.6 crore, compared to ₹2,440 crore in the third quarter ended December 31, 2020. Revenue from operations jumped 35% to ₹12,525 crore in Q3 FY22 as against ₹9,280.5 crore in the corresponding of last year.