Capex to stimulate growth; value-addition to aid margins…
JTL Industries Ltd (JTL), a prominent player in the structural steel tubes and pipes sector, has ascended as the fastest-growing company propelled by robust sectoral dynamics, augmented production capacities, and a strong offtake facilitated by an extensive network of distributors, dealers, and clients (both within the nation and overseas). Further, its strategic decision to prioritize the value-added product segments and to set up facilities near raw material suppliers(in conjunction with backward integrated plants) has proven to be effective, yielding an industry-leading EBITDA/ton. Ahead, the company is expected to sustain its notable growth trajectory, driven by its objective to expand its capacity to 1.0mn MTPA in FY25, with plans to more than triple the existing capacity over the next three years. The overarching aim is to triple the sales volume on FY24 figure. Moreover, JTL is embracing advanced Direct Forming Technology (DFT), which is anticipated to facilitate the company’s expansion of SKUs towards innovative value-added products in a more efficient manner, in-turn, notable rise in EBITDA/ton and profitability with better product mix. Having said that, the most noteworthy aspect is that the funds are largely in-place for the imminent expansion, thanks to the recently concluded QIP, and warrants issued over the past few years. Thus, the balance sheet to remain streamlined. Given strong outlook, we initiate with BUY.
Ranks among key players in steel tubes and pipes industry; set to enter league of top three
JTL operates a total of four manufacturing plants situated in the states of Punjab, Chhattisgarh, and Maharashtra, with a combined production capacity of 0.59mn MTPA dedicated to structural steel tubes and pipes. This capacity is categorized into two main product lines: a) MS black pipes and b) value-added products, which largely encompass Galvanised Iron. In the future, this product portfolio is anticipated to broaden with the introduction of new offerings, including colour-coated pipes and roofing sheets, through the implementation of DFT. Also, the ongoing capex are projected to elevate the total production capacity to 1.0mn MTPA in FY25, with further goal of reaching 2.0mn MTPA by FY28-end. Having said that, the primary emphasis of this capacity expansion is anticipated to be at the Maharashtra site, where a) a significant land bank exists, b) there is strong demand within the region, c) the raw materials is easily accessible, and d) the proximity to ports facilitates convenient exports. Thus, with its deliberate expansion efforts and the increase in SKUs, JTL is set to emerge as one of the top three players by capacity by FY28-end.
Sales volume to expand at 30.5% CAGR; margins and profitability to rise at superior pace
JTL has recorded a remarkable 58.0% volume CAGR over FY21-24, primarily attributed to a surge in product demand and an almost two-fold increase in manufacturing capacity. Further, a 6.1% CAGR in price realization has bolstered revenue, resulting in an impressive 67.3% CAGR over FY21-24 (to ~Rs20.4bn in FY24). Moreover, EBITDA has experienced a considerable increase from Rs3,779/ton in FY21 to Rs4,448/ton in FY24, driven mainly by a greater share of value-added products. Ahead, our expectations for FY24-27E includes 30.5% volume CAGR, likely to be driven by persistent strong industry demand, better supply on ongoing capex, and improving utilization rates. Nonetheless, the decline in global steel prices, resulting from a significant slowdown in the Chinese economy, is noteworthy. Thus, we expect a continuity and foresee mere ~1% CAGR improvement in blended realizations. With this, revenue to rise at 31.8% CAGR over FY24-27E. Further, EBITDA is likely to increase to Rs5,337/MT on an enhanced product mix. As a result, we foresee PAT improving at a 37.4% CAGR over FY24-27E (to ~Rs2.9bn; compared to 77.9% CAGR over FY21-24 on lower base).
Capital raised via QIP and issuance of warrants to fund capex; working capital to remain favourable
JTL has reported rise in gross borrowings (climbing from Rs351mn at FY19-end to Rs1,068mn at FY23-end), attributed to the need for capital to support capacity expansion and working capital. However, in an effort to control the escalating debt and enable capacity expansions, it has raised Rs8.5bn thus far through a QIP and the issuance of warrants (over the past two years), with an anticipated additional Rs5.1bn to be secured by Aug’25. Effectively, the gross debt has declined to Rs200mn by FY24-end while the balance sheet is likely to remain lean in the upcoming period (as capital would suffice planned capex). Furthermore, the company utilizes a just-in-time kind-off strategy for both inventory and finished goods management, while a healthy mix of clients aids in maintaining solid receivables. As a result, the working capital days at FY24-end were noted to be ~57 days. We expect this to rise to a range of 70-80 days, largely due to a rise in inventory days.
View: We possess a strong belief in the long-term business potential, supported by strong industry demand, the expansion in capacity, healthy revenue visibility, enhancing EBITDA/ton, a streamlined balance sheet and efficient working capital days. At CMP, the stock is trading at 20.3x Sept’26 EPS. We value the stock at 28x Sept’26 Est. EPS and arrived at TP of Rs294/share. “Initiating with BUY”.
JTL Industries Ltd – Initiating Coverage – SMIFS Institutional Research
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