Capex to enhance crude steel capacity by ~65% to 15.9mt by FY25
JSP plans to incur a significant capex to enhance its crude steel capacity to 15.9mt from current 9.6mt and strengthen raw material integration and product enrichment. The planned capex could result in volume growth and a reduction in structural costs.
With the planned capex, JSP will increase its flat steel capacity to 7.7mt from 2.2mt to cater to automotive and high-tensile steel, thereby enhancing its product mix.
In 1QFY24, the company signed a mining lease for Gare Palma IV/6 and Utkal C, with total R&R of ~363mt and EC of ~7.4mt p.a. JSP has already entered the Gare Palma IV/6 mines and is in the final stage of entering Utkal-C mines. After the two mines become operational, they will fulfill ~50% of JSP’s thermal coal requirement, thereby reducing its dependence on the import of coal and merchant mines.
JSP over last few years has shifted its focus to high-margin VAP (~65% of sales). This has helped the company strengthen its product offering across the value chain and improve realizations.
The company has followed a prudent deleveraging policy to strengthen its balance sheet. With net debt of ~INR68b in 1QFY24 and a net debt-to-EBITDA ratio at a comfortable level of 0.75x, JSP has one of the strongest balance sheets among the domestic manufacturers. The stock trades at 4.8x FY25E EV/EBITDA.
Key downside risk: Delay in the commissioning of the Angul plant and coal mines may delay growth and margin improvement.