NewsStocksNuvama Cuts Jindal Steel Price Target by 9.7% but Maintains Buy Rating with 25% Upside PotentialNuvama Cuts Jindal Steel Price Target by 9.7% but Maintains Buy Rating with 25% Upside Potential
Nuvama reduced its price target for Jindal Steel from ₹1,400 to ₹1,264 per share, a 9.7% cut, while maintaining a 'buy' rating. The brokerage expects near-term challenges due to declining steel prices and rising production costs, projecting a Q3 EBITDA per tonne of ₹8,200, down ₹1,800 sequentially. However, Nuvama remains optimistic about JSPL's long-term growth, forecasting a 17% volume CAGR and 28% EBITDA CAGR over FY25-28. EBITDA estimates for FY26-28 have been revised downward, but significant margin expansion is expected in later years.
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Jindal Steel shares declined 0.9% to ₹1,003.60 on Wednesday following Nuvama's price target revision, though the brokerage maintains its optimistic long-term outlook for the steel manufacturer.
Revised Price Target and Rating
Nuvama has reduced its price target for Jindal Steel from ₹1,400 to ₹1,264 per share, representing a 9.7% cut. Despite this downward revision, the brokerage retains its "buy" rating on the stock, with the new target still implying a significant upside potential of 24.8% from the previous closing price.
Near-Term Challenges Expected
The steel sector faces a challenging environment with dual pressures impacting profitability. Nuvama highlighted that JSPL confronts a "double whammy" of declining steel prices coupled with rising production costs, which is expected to weaken steel spreads in the near term.
| Metric | Q3 Projection | Sequential Change |
|---|---|---|
| EBITDA per tonne | ₹8,200 | -₹1,800 |
The brokerage anticipates that steel spreads will bottom out during the third quarter, suggesting the worst of the current downturn may be contained to this period.
Long-Term Growth Prospects
Despite near-term headwinds, Nuvama remains confident about JSPL's growth trajectory. The company's existing capacity positions it well for substantial expansion, with the brokerage projecting a robust 17% compound annual growth rate over FY25-28.
| Growth Projections | FY25-28 CAGR |
|---|---|
| Volume Growth | 17% |
| EBITDA Growth | 28% |
The anticipated recovery in steel prices is expected to drive EBITDA growth at an impressive 28% CAGR during the same period.
Revised Financial Estimates
Nuvama has adjusted its EBITDA projections downward to reflect the challenging pricing environment:
| Fiscal Year | EBITDA Cut | Reason |
|---|---|---|
| FY26 | 16% | Lower steel prices |
| FY27 | 13% | Lower steel prices |
| FY28 | 7% | Lower steel prices |
However, the brokerage expects significant margin expansion in the outer years, with EBITDA per tonne projected to increase by ₹3,000-4,000 in FY27 and FY28 compared to FY26 levels. This improvement is attributed to higher volumes, better price realisation, and cost reduction initiatives.
Stock Performance
Jindal Steel shares have demonstrated resilience in 2024, gaining 7% year-to-date despite the recent decline. The stock's performance reflects investor confidence in the company's long-term prospects amid cyclical industry challenges.
Historical Stock Returns for Jindal Steel
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| -1.25% | -1.50% | -3.41% | +6.74% | +4.65% | +280.52% |
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