Steel companies in India running at 90% capacity – Jindal Group

Steel companies in India running at 90% capacity – Jindal Group

Update on the Indian Equity Market:

On Tuesday Nifty closed 0.3% higher at 10,799. Among the sectoral indices, Pvt Bank (+2.7%), IT (+2.1%), and Bank (+1.9%) closed higher. Metal (-1.7%), Realty (-0.7%), and FMCG (-0.4%) closed lower. Bajaj Finance (+7.8%), IndusInd Bank (+5.9%) and Bajaj FinServ (+4.5%) closed on a positive note. Adani Ports (-3.5%), PowerGrid (-3.0%) and Grasim (-2.9%) were among the top losers.

Excerpts from an interview of Mr Sajjan Jindal, Chairman, Jindal Group with ET Now dated 6th July 2020: 

  • Speaking about the current economic scenario he said the June GST collection of Rs 90,000 crore gives a good indication. The auto industry is sluggish and is operating at about 30-35% level from a production perspective.
  • October this year could be better than last October.
  • For steel products, domestic demand is about 50% of the capacities which is about 50-60 million tonnes for the year. By the end of the year, it is expected to go to the normal level, which is 110 million tonnes.
  • The steel industry in India is balancing the current situation by exporting steel to different parts of the world. Therefore, steel companies in India are running at close to 90% capacity.
  • There should not be any control over imports and exports. But when it comes to China, the country has not behaved properly with India.
  • The steel companies buy refractories from China for steel making and it is one of the important ingredients for manufacturing steel. The company buys 90% material from China, but there are plans to bring down the dependence on China and focus on domestic manufacturing or exports from other countries. 
  • In the beginning, there will be a pain as Indian supplies are going to be expensive. The company will work with Indian producers and the emerging markets to bring down the cost and improve the quality.
  • The group has given clear instructions that they will not import any material directly from China which is close to $400 million.
  • The industry has to come together to support the army and government and automatically this will go a long way in developing the Indian industry.
  • On Coal Import, he said India does not have good quality metallurgical coal needed for manufacturing steel. So, the company have to import that. The group cannot be 100% self-reliant on everything. But importing manufactured products is not a great idea. So the industry should be developed.

Consensus Estimate: (Source: market screener websites)

  • The closing price of JINDALSTEL was ₹ 156/- as of 07-July-2020.  It traded at NM/20 x the consensus earnings per share estimate of ₹ -6.3/7.8 for FY21E/ FY22E respectively.
  • The consensus average target price for JINDALSTEL is ₹ 176/- which implies a PE multiple of 23x on FY22E EPS of ₹ 7.8/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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