Why Are Jindal Steel Shares Climbing Today?

Jindal Steel and Power Ltd (JINDALSTEL) is one of the leading steel and power companies in India. The company has a diversified portfolio of products, including sponge iron, steel, pellets, power, mining and infrastructure. Jindal Steel has been performing well in the recent quarters, reporting strong growth in revenue, earnings and cash flow.

The company’s share price has also been on an upward trend, reaching a 52-week high of 622.75 on June 9, 2023. The stock has gained over 90% in the past year, outperforming its peers and the broader market. What are the factors behind this impressive performance? Let’s take a look at some of the reasons why Jindal Steel shares are climbing today.

Strong Demand and Prices for Steel

One of the main drivers of Jindal Steel’s growth is the robust demand and prices for steel in both domestic and international markets. The company has benefited from the recovery in economic activity after the Covid-19 pandemic, which has boosted the demand for steel from various sectors such as infrastructure, construction, automotive, railways and consumer durables.

According to the World Steel Association, global crude steel production increased by 15.2% year-on-year in April 2023 to 169.5 million tonnes. India’s crude steel production also rose by 21.9% year-on-year to 10.5 million tonnes in April 2023, making it the second-largest producer of steel in the world after China.

The strong demand for steel has also led to higher prices, which have improved Jindal Steel’s profitability and margins. The company reported an average realization of 57,000 per tonne for its steel products in the fourth quarter of fiscal year 2023, up by 22% year-on-year. The company also achieved a record EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 32% in the fourth quarter of fiscal year 2023, compared to 18% in the same period last year.

Expansion and Diversification of Capacity

Another factor that has contributed to Jindal Steel’s growth is its expansion and diversification of its production capacity. The company has invested heavily in increasing its capacity across its product segments, such as sponge iron, steel, pellets and power. The company’s total capacity stood at 8.6 million tonnes per annum (MTPA) for sponge iron, 6.8 MTPA for steel, 9 MTPA for pellets and 3,400 megawatts (MW) for power as of March 31, 2023.

The company has also diversified its product mix by adding value-added products such as rails, plates, coils and wire rods. These products have higher margins and better demand prospects than commoditized products such as billets and ingots. The company’s value-added products accounted for 57% of its total sales volume in the fourth quarter of fiscal year 2023, up from 45% in the same period last year.

The company has also expanded its geographical presence by exporting its products to various countries such as China, Vietnam, Indonesia, Malaysia, Nepal and Bangladesh. The company’s exports accounted for 24% of its total sales volume in the fourth quarter of fiscal year 2023, up from 16% in the same period last year.

Reduction of Debt and Improvement of Liquidity

A third factor that has enhanced Jindal Steel’s performance is its reduction of debt and improvement of liquidity. The company has been able to reduce its net debt by Rs. 11,000 crore in fiscal year 2023, bringing it down to Rs. 25,600 crore as of March 31, 2023. The company’s net debt to EBITDA ratio improved to 1.4x as of March 31, 2023, compared to 4x as of March 31, 2022.

The company has also improved its liquidity position by generating strong operating cash flow and raising funds from various sources such as equity issuance, asset monetization and refinancing. The company reported a positive free cash flow of Rs. 8,800 crore in fiscal year 2023, compared to a negative free cash flow of Rs. 1,900 crore in fiscal year 2022. The company also raised Rs. 2,700 crore from a qualified institutional placement (QIP) in December 2022, Rs. 1,200 crore from the sale of its oxygen plant assets in January 2023 and Rs. 7,200 crore from the refinancing of its term loans in March 2023.

The reduction of debt and improvement of liquidity have helped Jindal Steel to lower its interest cost and enhance its credit ratings. The company’s interest cost declined by 24% year-on-year to Rs. 1,900 crore in fiscal year 2023. The company’s credit ratings were also upgraded by various agencies such as CRISIL, ICRA and CARE in the past year.

Conclusion

Jindal Steel and Power Ltd is one of the leading steel and power companies in India, with a diversified portfolio of products and a strong market position. The company has been able to grow its revenue, earnings and cash flow by leveraging the strong demand and prices for steel, expanding and diversifying its capacity and reducing its debt and improving its liquidity. The company’s share price has also reflected its impressive performance, reaching a 52-week high of 622.75 on June 9, 2023.

The company’s outlook remains positive, as it expects to further increase its capacity, improve its product mix, enhance its operational efficiency and reduce its debt in the coming quarters. The company also plans to explore new opportunities in the areas of green energy, hydrogen production and carbon capture and utilization. Jindal Steel is well-positioned to capitalize on the growth potential of the steel and power sectors in India and abroad.