Pick of The Week By Axis Securities: JTL Industries Gets Buy Rating; Latest Target Price?

Headquartered in Chandigarh, JTL Industries Ltd. is one of the steel tube producers and operates production plants in Chhattisgarh, Maharashtra, and Punjab. The company's total pipe production capacity is 686 ktpa. Its product line, which serves a variety of industrial applications, comprises hollow sections, solar structures, GI pipes, MS Black pipes, ERW pipes, and others. According to the company's growth plans, its present 686ktpa capacity will increase to 1 MTPA by FY25 and then to 2 MTPA by FY27. At 12:42 p.m. IST on Monday, JTL Industries' stock was up 0.95% at Rs 100.62 a share. Following the broking company Axis Securities' buy recommendation of JTL Industries as its pick of the week, with a target price of Rs 111, indicating a possible upside of almost 10%, the stock price saw a surge.

Why Buy The Shares of JTL Industries?

According to the research analysts of Axis Securities here is the investment rationale behind buying the shares of JTL Industries.

Capacity expansion to drive growth: JTL plans to expand its capacity to 1 MTPA by the end of FY25 and 2.0 MTPA by FY27 from 686 KTPA at present. Out of this, the majority of the capacity will be in value addition (DFT, colour coated, pre-galvanised etc.), providing better margins and more SKUs. Capacity addition CAGR of 26% over FY25-27 will ensure strong volume growth potential.

EBITDA/t to improve: With the majority of the incremental capacity coming from the value-added products (DFT, colour coated, pre-galvanised etc.), the VAP share will increase towards 45% in FY26 from 29% in FY24. VAP products have higher EBITDA/t of Rs 7,000/t+ as compared to commoditized products which will lead to an increase in EBITDA/t in future.

Resilient Q2FY25 in the backdrop of falling steel prices: Despite steel prices falling 6% QoQ, JTL's EBITDA/t at Rs 3,300/t stood resilient compared to the major peer in Q2FY25. This is because i) The company uses both Primary and Secondary HR Coils and serves both market segments. Presence in the Secondary market helps JTL industries as the Secondary market is less volatile towards steel price fluctuations and inventory destocking by traders, ii) Jump in Exports (at 14% of total sales volume vs. 5% and 7% in Q2FY24 and Q1FY25) using imported coils also led to an increase in margins.

Pick up in Government capex after dull H1FY25: In H1FY25, sales volume de-grew by 4% vs. H2FY24 (up 11% YoY) as general elections and monsoon along with volatile steel prices led to a decline in demand and traders destocking. However, with the expected pick up in the government Capex, the order inflow from the government is improving. For H2FY25, we expect sales volume to pick up with total FY25 sales volume growing 30% YoY to 445kt.

JTL Industries Financials

In Q2FY25, JTL Industries' net profit dropped from Rs 27.91 crore in the September 2023 quarter to Rs 26.36 crore, a 5.55% reduction. Sales during the September 2024 quarter dropped by 4.49% to Rs 479.55 crore from Q2FY24's Rs 502.10 crore. JTL Industries showed perseverance in its financial performance in Q2 FY25, with a total revenue of Rs 4,874 million. The EBITDA for the quarter was Rs 377 million, with an EBITDA margin of 7.7%. Additionally, H1 FY25 EBITDA grew to Rs 815 million, a 6.3% growth. From 81,686 MT in Q2 of FY24 to 103,193 MT, the company's sales volume grew by 26.32%.

JTL Industries Share Price Target

"We recommend a BUY rating on the stock with a target price of Rs 111/share, implying an upside of 10% from the CM," said AXIS Securities in a note.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.