Jindal Stainless Limited Has Good Growth Potential. (Financial Express 2.11.99)

At first glance, the results of Jindal Stainless do not look like that of a steel manufacturer, but rather of a software company, with a bottomline growth of 93% and top line growth of 28.64% in the second quarter.

This has been possible due to the business restructuring carried out over the year. The company is now completely focused in stainless steel. JSL has posted a turnover of Rs. 311.51 crore for the second quarter as compared to Rs. 242.15 crore in the previous fiscal year. The bottomline has gone up from Rs. 8.15 crores to 15.72 crores, which has been partly a result of improvement in the operating margins, which have improved from 18% to 19.6%.

According to Arvind Parakh, Vice President, Jindal Stainless, the growth in operating profit has been a combination of factors like higher production (a record production of 79,196 Mt in the second quarter as compared to 57,105 MT in the corresponding period in the previous year), which has resulted in better distribution of overheads. The increased production is a result of the commissioning of phase-I of the cold rolling unit.

Secondly, Jindal Stainless procures nickel on a three-four month basis. Thus, in a scenario where nickel prices are rising, (which is the case currently) the company benefits from the time lag between procurement of nickel and consumption of steel.

Nickel prices have recently touched a 29-month high of Rs. 7,714 per tonne on the LME. Stainless steel prices in the past two months have increased from a range of $1,150-1,200 per tonne to $1,400-$1,500 per tonne for CR 304 2B 2mm grade stainless steel.

Thirdly, JSL has also benefited from prudent financial management, which has helped in bringing down the cost of funds from 16.5 per cent last year to 15% currently. Fourthly, a 100 percent captive DG power plant, which supplies the company the cheap power, also helped in improving its profitability.

The company, as part of its phase-I project, has undertaken some structural changes. It had a CR mill with a capacity of 30,000 tpa, which could produce rolls having thickness of 1,20 mm. However, the market demand had shifted to thinner gauge material, which resulted in lower capacity utilisation. JSL, as a part of the de-bottlenecking exercise, installed a Sendzimer mill, which could produce rolls of thickness as low as 0.25 mm. Commercial production at this mill started from August 1999, which, according to Parakh, is expected to touch a capacity utilisation of 70-75 per cent in the remainder of the year as compared to 34 per cent in the previous fiscal year.

In the domestic stainless steel segment, compounded average growth of around 10 per cent has been witnessed over the last two decades. During the last two years, the growth rate has been around 5-6 per cent. This is primarily based on the fact that the domestic stainless steel demand is towards the utensils sector, which has not been directly hit by the global recessionary effects.

The stainless steel market in India is predominantly oriented towards the utensils sector, which accounts for 70-75 per cent of the total stainless steel demand of around 650,000 tpa. In the utensils sector, 200 series grade is used, of which Jindal Stainless is the largest producer in India.

Importantly, Jindal Stainless has managed to export around 2,700 mts of cold roll stainless steel in the first half that was valued at around $4 million. By the end of the current quarter, the company is expected to execute export orders of around $7 million.

The current growth avenues aside, JSL is exploring expansion opportunities as part of the phase-II project. It will be expanding the cold rolling mill capacity at a cost of Rs. 250 crores. To fund the project, the company will issue a $22 million foreign currency equity linked debt issue, apart from domestic borrowings and internal accruals. The project will involve setting up of a cold roll mill with an installed capacity of 60,000 tpa, along with value addition lines like Skin Pass Mill, Bright Annealing Line which are expecting to start production in March 2001. JSL is well placed for Q3 considering the growth as a result of increased utensil consumption during the festive season as well as higher export turnover, and increasing steel prices. JSL has tied up its nickel requirement until December end. The scrip, which is currently traded at Rs. 116.7 after touching a high of Rs. 167, offers good upward potential.