Fundamental Analysis Of Jindal Stainless: Steel – An engineering marvel in and of itself, without which we wouldn’t have some of the tallest buildings in the world if any at all. Take iron ore, remove oxygen and other unnecessary impurities, and combine it with carbon, you have steel. Now, take a farmer’s son from Haryana, add a bucket-manufacturing unit in Liluah, and you have what we now today as a billion-dollar conglomerate – Jindal.
Part of that conglomerate, is Jindal Stainless Ltd, a medium-sized company steel company looking to make its way to become a leading steel maker in the world. But can they get there in time? That’s one of the questions we’ll answer in the Fundamental Analysis of Jindal Stainless.
Table of Contents
Fundamental Analysis of Jindal Stainless
We’ll begin our Fundamental Analysis of Jindal Stainless by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of future plans and a summary.
Company Overview
Founded as a bucket manufacturing unit in 1970, Jindal Stainless Ltd has expanded to become the largest steel manufacturing company in India and also is one of the top 10 stainless steel producers in the world.
The company has two key manufacturing facilities in Odisha and Hisar that have a production capacity of 2.1 MTPA and 0.8 MTPA respectively. The factory is strategically positioned near raw material sources and ports, allowing the company to keep logistics and transportation costs low. It is also equipped with high-end machinery enabling them to produce globally competitive stainless steel products.
The Company is the largest manufacturer of stainless steel in the 200, 300, 400 and duplex stainless steel series. The product range includes bloom, steel slab, coils, plates, sheets, blade steel, precision strips and coin blanks. With a strong distribution network with extensive service centres, the company currently exports its products to over 40 countries around the world.
Industry Overview
India is one of the fastest-growing markets for stainless steel because of its wide range of applications. The use of stainless steel can be found in infrastructure projects, the manufacturing sectors and also in the production of high-quality products cause of its higher durability and lower maintenance.
As per the reports of Crisil Ratings, the Domestic stainless steel demand is expected to grow at a CAGR of 9% until FY25. This demand stood at 4 MT in FY22.
Increasing usage of stainless steel in railways as well as increased application in the automobile and construction sectors is said to increase its demand.
Railway demand is estimated to more than triple by fiscal 2025, accounting for 20% of new demand for the metal between fiscal 2023 and fiscal 2025.
Other main industries that use stainless steel, such as consumer goods and the process industry, are predicted to increase at a solid rate of 7-9% over the next 3-5 fiscal years, owing to higher consumer spending and a recovery in consumption.
Fundamental Analysis Of Jindal Stainless
We will now conduct a Fundamental Analysis of Jindal Stainless Ltd by using the reports given by the company.
Jindal Stainless – Financials
Revenue and Net Profit Growth
The Profit/Loss statement of the company indicates that the revenues of the company have increased from Rs. 13,589.94 Crores to Rs. 35,823.32 from FY18-19 to FY22-23 respectively. This gives the company a 4-year CAGR of 27.42% on its revenue.
During the same duration, the net profits of the company have increased from Rs. 145.11 Crores to Rs. 2,083.83 Crores at a CAGR of 94.67%.
| Year | Total income | Profit after tax |
|---|---|---|
| 2019 | 13,589.94 | 145.11 |
| 2020 | 12,990.76 | 72.62 |
| 2021 | 12,229.36 | 419.46 |
| 2022 | 21,279.22 | 1,909.12 |
| 2023 | 35,823.32 | 2,083.83 |
Note: The Financial Statements for FY22 have been as restated by the directors of the company to give effect to the Composite Scheme of Arrangement (‘Scheme’) amongst the Company, Jindal Stainless (Hisar) Limited, JSL Media Limited, JSL Lifestyle Limited, and Jindal Stainless Corporate Management Services Private Limited.
As per the restated financial statement, the company reported a revenue of Rs.32,732.65 Crores and a net profit of Rs.3,109.39 Crores for FY22.
Changes in the ways of arriving at the financial statements might be one of the factors for the increase in the company’s revenue and net profit.
Let us now analyze the margins of the company and see if they have increased in the same pace as the revenues
Margin Analysis
Both the operating profit margins and the net profit margins of the company have increased moderately until FY22 with a slight drop in FY23. Though there has been an increase in the margins, these margins are still low for the scale of operations of the company.
| Year | Operating Profit Margin(%) | Net Profit Margin (%) |
| 2019 | 6.23 | 1.07 |
| 2020 | 5.82 | 0.56 |
| 2021 | 8.71 | 3.43 |
| 2022 | 12.58 | 8.97 |
| 2023 | 8.37 | 5.82 |
Return Ratios: RoCE and RoE
If we take a look at the return on equity of the company, we can see that the company reported excellent returns of 36.27% in FY22. But as of FY23, the ROE has declined to 17.72% which is slightly below average. This means the efficiency at which the company generated the returns on the capital invested by the shareholders has declined.
The RoCE of the company has also followed a similar trajectory. For FY23, the company reported a return on capital employed of 18.46% which is less compared to the RoCE in FY22 of 34.9%. This indicates a decline in the efficiency of the resource utilization by the company.
| Year | ROE (%) | RoCE (%) |
| 2019 | 5.49 | 13.49 |
| 2020 | 2.62 | 12.4 |
| 2021 | 13.07 | 15.9 |
| 2022 | 36.27 | 34.9 |
| 2023 | 17.72 | 18.46 |
Debt & Interest Coverage Ratio
Looking at the company’s leverage status, we can see that it has reduced its debt-to-ratio to less than 0.32 during FY23. This suggests that the company is under less financial strain because it is depending less on borrowed capital to fund its operations and expansion.
This also means that the company can keep more of its revenue because it does not have a large commitment to repay debt and interest.
For FY23, the company reported an interest coverage ratio of 11.44 which is the highest in the last five years. This ratio suggests that the company can pay its interest on its debt 11 times with the income they have earned
This also implies that the business is in a position to borrow additional funds for the purpose of expansion and growth.
| Year | Debt to Equity (x) | Interest Coverage Ratios (X) |
| 2019 | 1.24 | 1.33 |
| 2020 | 1.24 | 1.29 |
| 2021 | 0.97 | 2.21 |
| 2022 | 0.6 | 9.16 |
| 2023 | 0.32 | 11.44 |
Future Plans of Jindal Stainless
So far we looked at previous fiscals’ data for our fundamental analysis of Jindal Stainless. Let us now see what plans the company has in store for the future.
- The company is planning to nearly double capacity to 2.9 million tonnes per annum at a cost of Rs 2,600 crore in capital expenditure. The expansion plans will be executed across its facilities at Jaipur and Hisar. This will make the company one of the top 10 globally.
- The company is also eyeing to secure its own resources post the capacity expansion. These resources include ferrochrome and nickel mines which are currently sourced from auctions and in the open market.
- Finally, the company is also set out to acquire smaller stainless steel and steel players which will help increase their economies of scale.
Fundamental Analysis of Jindal Stainless – Key Metrics
We are almost at the end of our fundamental analysis of Jindal Stainless. Let’s take a quick glance at the stock’s important metrics.
| CMP | ₹ 324.7 | Market Cap (Cr.) | 26,724 |
| EPS | ₹ 25.7 | Stock P/E | ₹ 25,922 |
| RoCE (%) | 18.46% | RoE(%) | 17.72 |
| Promoters Holding | 57.90% | Book Value | ₹ 145 |
| Debt to Equity | 0.32 | Price to Book Value | 2.21 |
| Net Profit Margin(%) | 8.37 | Operating Profit Margin(%) | 5.82 |
In Closing
As we conclude our fundamental analysis of Jindal Stainless Limited, we have to make note that though the company operates in a low-profit margin industry, its plans to expand its operations, acquire its own resources and also acquire smaller firms will enable it to increase its sales which in turn can turn into increased profits.
What is your outlook on the stock? Let us know in the comments below.
Written By – Aaron Vas
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