Jindal Steel turns top performing stock on India’s building optimism
After dropping for six straight years on weak sales and high debt, a remarkable turnaround in fortunes has made Jindal Steel & Power Ltd the top performer this year among India’s top 200 stocks.
Investors are betting that Jindal Steel will be a major beneficiary of Prime Minister Narendra Modi’s plans to broaden and improve the country’s infrastructure. In the past month, six brokerages, including Deutsche Bank AG, have upgraded the stock, which has doubled in the past 12 months and leads the S&P BSE 200 Index this year.
One big advantage Jindal Steel has over peers such as Tata Steel Ltd and JSW Steel Ltd is its focus on making billets, reinforcing bars and rails used in construction as well as products for the automotive sector, Vishal Kulkarni, a Singapore-based analyst at S&P Global Ratings, said by phone. “As Indian housing and infrastructure spending picks up, it will boost JSPL’s operations.”
The Modi government has announced proposals to spend a record Rs3.96 trillion ($61 billion) in the financial year starting April to build railways, airports and roads. The domestic steel industry as a whole is benefiting from rising product prices, burgeoning demand and the reduced threat from overseas competition after tariffs were imposed.
Jindal Steel’s plans to ramp up capacity after commissioning a 3.2 million-tonne a year blast furnace in the eastern state of Odisha next month. That’ll boost sales by about 30% to 6.8 million tonnes over three years, according to Edelweiss Financial Services Ltd, which raised the stock to a buy on 9 March.
All this good news is welcome. The company has reported nine straight quarters of losses as it struggled to boost revenues amid a surge in imports, low capacity utilization and weak power demand.
Shares of the Naveen Jindal-controlled company, which closed at Rs121 on Friday, have rallied 75% this year, outpacing the 11% gain seen in the S&P BSE Sensex Index. That’s also topped the 16% advance in JSW Steel and Tata Steel’s 23% advance.
The stock had been stuck in a narrow range last year while other steelmakers rallied, offering more scope now for its shares to rise, according to Edelweiss Financial’s analyst Amit Dixit. The ramp-up will de-stress the balance sheet significantly, he said.
Jindal Steel has the second-highest borrowing level among Indian steelmakers of Rs452 billion as of December, according to data compiled by Bloomberg. The company approved the issue of over 48 million convertible warrants on preferential basis at a board meeting Thursday.
Last year, the steelmaker missed interest payments on loans for three months because of short-term cash flow mismatches. However, the company has made regular payments of interest this year, while its loss halved last quarter from the year ago period.