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Updated February 21st, 2024 at 16:20 IST

Jindal Steel's capacity expansion to propel growth prospects: Report

The planned capital expenditure is anticipated to drive volume growth while concurrently reducing structural costs, bolstering Jindal Steel's competitive edge.

Reported by: Abhishek Vasudev
Jindal Steel Q3 results,
Jindal Steel Q3 | Image:Jindal Steel & Power
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Jindal Steel and Power is set for growth with its ongoing capacity expansion project at Angul, Odisha. The expansion, slated for completion by the fiscal year 2026, is set to boost Jindal Steel's crude steel capacity by 65 per cent to 15.9 million tonnes. The strategic move is expected to position Jindal Steel as the fourth-largest steel manufacturer in India, marking a major milestone for the company.

In line with its expansion endeavours, Jindal Steel is undertaking various initiatives aimed at strengthening its operational capabilities. These include enhancing raw material integration, increasing the share of captive power plant (CPP), focusing on flat steel production, and undertaking product enrichment measures. The planned capital expenditure is anticipated to drive volume growth while concurrently reducing structural costs, bolstering Jindal Steel's competitive edge in the market, the Mumbai-based brokerage firm Motilal Oswal said in a note.

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The recent commissioning and dispatch of the first rake from the 6 million tonnes hot strip mill (HSM) at Angul underscore Jindal Steel's commitment to operational excellence and timely project execution. This achievement not only enhances the company's production capabilities but also enables it to cater to key sectors such as automobile, construction, oil, and colour coating industries.

Furthermore, Jindal Steel has made significant strides in its raw material integration efforts. The commencement of production at Gare Palma IV/6 mines, coupled with the operationalisation of the Utkal C coal block, reflects Jindal Steel's proactive approach to securing critical resources. These developments are expected to contribute to increased raw material integration, thereby supporting the company's capacity expansion initiatives, the Mumbai-based brokerage said.

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Jindal Steel's prudent financial management is another key highlight, with a focus on deleveraging to fortify its balance sheet. With a net debt of Rs 9,100 crore in the first nine months of the current financial year and a comfortable net debt-to-EBITDA ratio of 0.9 times, Jindal Steel stands out for its robust financial position among domestic ferrous manufacturers.

However, it is essential to note potential downside risks, such as delays in the commissioning of remaining coal mines, which could impact cost synergies and margin improvement for the company, Motilal Oswal said.

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Looking ahead, Jindal Steel has outlined an ambitious capex outlay of Rs 7,500-10,000 crore per annum over the next three years, with a focus on scaling up through capacity expansion. The increased capex guidance underscores the company's confidence in its growth trajectory and underscores its commitment to enhancing operational efficiencies, Motilal Oswal added.

The brokerage has buy call on the stock for target price of Rs 900.
 

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Published February 21st, 2024 at 11:55 IST

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