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Friday 27 April 2018

Jindal Stainless (Hisar)

  • Jindal Stainless (Hisar) Limited (JSHL) is India’s first fully integrated stainless steel manufacturer with a capacity of 0.8 MTPA.
  • JSHL is world’s largest producer of Stainless Steel strips for razor blades and India’s largest producer of coin blanks, serving mints worldwide.
  • Currently, the only specialty stainless steel producer in India
  • Key projects / products:
    • SS fuel tanks (Ashok Leyland, Eicher Motors, Tata Motors)
    • SS exhaust systems for commercial vehicles (Ashok Leyland, Tata Motors)
    • SS bus bodies (Karnataka/ Telengana/ AP/ Goa State Transport Corporations, Volvo)
    • SS tanks, pipes and tubes are extensively used in the chemical industry
    • SS tanks and utensils in the dairy, beverage and food processing industry

  • Stainless steel is an alloy of Iron with a minimum of 10.5% Chromium. Chromium produces a thin layer of oxide on the surface of the steel known as the ‘passive layer’. This prevents any further corrosion of the surface. Increasing the amount of Chromium gives an increased resistance to corrosion.
  • Stainless steel also contains varying amounts of Carbon, Silicon and Manganese. Other elements such as Nickel and Molybdenum may be added to impart other useful properties such as enhanced formability and increased corrosion resistance.
  • India is currently the 2nd largest producer of stainless steel after China
  • The SS industry is growing at 8-9% yoy. The growth is in response to the rising demand for stainless steel, mainly from sectors such as auto, roads and highways, housing and the like.
  • Imposing a definitive countervailing duty (CVD) on certain stainless steel products from China have helped the industry. Government had removed the import duty on nickel, a key material required to produce stainless steel

  • JSHL has been profitable at the operational level even before the demerger from JSL
  • RoCE and ROE are healthy
  • Debt is a major concern and is a key monitorable
  • Profit growth is very strong and the momentum is likely to continue
  • Valuations are reasonable. Company is available at 0.5x Market Cap / Sales

What is changing?
  • Majority of stainless steel was imported from China; with the CVD in place now, major shift of market share to Indian players is expected. JSHL is to be one of the most important beneficiaries of this shift.
  • Strong demand from traditional segment of kitchenware & utensils the growth will be largely driven by ABC (Architecture, Building & Construction) segment, ART(Automobile, Railways &Transportation), process industry segment & defense sector.
  • Focus on niche areas - Signed a license agreement with the Defence Research & Development Organization (DRDO) for manufacturing high nitrogen steel (HNS) for armour applications
  • With more stringent norms like Euro-VI kicking in by 2020, consumption of stainless steel is expected to get a boost, as SS reduces the weight of a vehicle.

Business Risks
  • JSHL has very high debt – 2774 cr (in aggregate) with 408 cr of interest payment during FY18.
  • JSHL has high receivables / sales ratio, though it is reducing (~8% in FY18 vs 12% in FY17)
  • Co has a single location operation in Hisar which increases geographical risk
  • Reduction or removal of CVD of imported Stainless steel
  • Significant delays in infrastructure spending, specially on railways & defense sectors

Disclosure: I am invested from lower levels. Please do your own due diligence before investing. This post is for educational purposes only.

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