Brokerage Firm Nuvama Says 'Buy' JTL Industries For 53% Upside; Here's Why

Brokerage firm Nuvama Institutional Equities has initiated its coverage on steel tube manufacturer JTL Industries with a Buy rating on the stock. In its report, the brokerage stated that with capacity additions underway (mainly value-added), JTL has been consolidating its position through volume and margin expansion.

Given JTL's efficient capital utilisation, steadfast profitability, and strong balance sheet, Nuvama has valued it at 25x Q1FY27E EPS (35 per cent-plus discount to the leader) and set the target price of the company's stock at Rs 303.

"We argue that JTL is poised to clock solid earnings growth led by capacity expansion to 2mtpa by FY28E, secular demand from diversified end-user industries such as infrastructure, product mix improvement lifting EBITDA/t, a net debt-free balance sheet despite heavy capex, and solid FCF," said the brokerage in its report.

On July 25, 2024, the Company's Securities Issue and Allotment Committee approved the allotment of 1,04,445 equity shares to five non-promoter/public category investors. This approval followed the receipt of the remaining 75 per cent of the warrant issue price. These equity shares were issued in exchange for converting an equal number of warrants. Additionally, a 1:1 bonus issue of 1,04,445 equity shares was allotted to these shareholders.

Consequently, the company's issued, subscribed, and paid-up equity share capital increased to Rs 38,32,75,458, comprising 19,16,37,729 equity shares of Rs 2 each. The new shares rank equally with existing shares. This allotment complies with SEBI regulations, and the warrants have an 18-month conversion period with a 25 per cent upfront payment and a 75 per cent balance due upon conversion. Failure to exercise warrants within 18 months results in forfeiture of the initial payment.

Recently, the company released financial results for Q1FY25. Revenue increased by 2.10 per cent to Rs 515.38 crore from Rs 504.80 crore during the same time the previous year. Higher sales volumes, more product demand, and strategic market expansion were the main drivers of this rise. JTL's profitability increased in Q1FY25 as well, with EBITDA increasing by 20.8% to Rs 43.86 crore. This resulted in an increase in EBITDA margin to 8.50% from 7.20 per cent the year before. Additionally, net profit increased to Rs 30.70 crore, or 21.0%.