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JINDAL STRIPS LIMITED- MARKET OUTPERFORMER 17th December, 2002 Industry : Category : Recommendation : Stainless Steel Growth Strong Buy

DVP ResearchA division of

EQUITY STRATEGIST502,Nirmal Tower Barakhamba Road,New Delhi-110001 E-mail : equity_strategist@rediffmail.com Analyst : D V Prasad (9810018028) P D Gupta (011-25269790)

Present Price BSE Sensex Reuters Code

: : :

Rs.115.00 3312.25 JNST.NS/BO

MARKET DATACurrent Equity Face Value Book Value Market Cap. Free Float 12 Months High/Low Listing : : : : : : : Rs. 18.91 cr. Rs. 10 Rs. Rs. 283.65 cr 56% Rs. 143/45 BSE / NSEl

EXECUTIVE SUMMARYJindal Strips Ltd. (JSL) managed by Mr. Ratan Jindal is the largest integrated stainless steel manufacturer (capacity-4 lacs mtpa) in India and is ranked among the top 15 producers globally. Capacity expansion from 4 lac. mtpa to 5 lac mtpa in FY04 by debottlenecking and financed through internal accruals to place JSL among the top 10 producers of the world. Complete integrated facilities for manufacture of stainless steel from in house chrome ore mining gives it a high competitive advantage. JSL has a broad range of value added products viz. currency coin blanks, razor safety blades, etc with cost efficient integrated production facilities. Jindal Strips enjoyes market leadership in domestic market and its market share has increased from a mere 19% in FY95 to over 43% in FY02. Increased focus on export of valued added products with establishment of marketing offices in China, Vietnam and Italy to further accelerate export sales. Order book position full till March 2003. Stainless Steel (SS) in India has grown @ 12% as against 6% for the steel industry. Global demand especially that of Asia for SS exceeds supply by a wide margin has China and South Korea have become the major demand driver. India enjoys locational advantage in shipping SS to China. Likely acquisition of Salem Steel Plant will further consolidate JSLs leadership position on account of premium brand of Salem steel products. Low equity base, high entry barrier, low operating cost, versatile manufacturing facilities and high value added products makes Jindal Strips a good growth stock. Jindal Strips at Rs. 115 (discount FY03 and FY04 earnings by just 2.93 and 2.41 times respectively) is an excellent investment opportunity in stainless steel industry which merits higher discounting due to its high value added products.


SHAREHOLDING PATTERN (%)Promoters & Associates FIIs / OCBs / NRIs Inst. / Banks / Mutuals Funds Resident Companies Public : : : : : 44% 2% 2% 20% 32%




FINANCIAL HIGHLIGHTSRs. in crores Particulars Sales Op. Profit OPM (%) Net Profit Equity E.P.S. Dividend (%) FY01 1458.29 222.02 15.35 53.24 18.91 27.27 40 FY02 1493.68 244.51 16.48 31.66 18.91 16.00 40 FY03P 1926.50 310.90 16.14 76.20 18.91 39.19 50 FY04P 2058.50 329.40 16.00 92.30 18.91 47.70 60


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BACKGROUND AND MANAGEMENTJindal Strips Limited, ISO 9902 and ISO 14001 certified is the flagship company of the Jindal Organization. The company has come a long way from a single factory establishment started in 1970. It is the largest integrated manufacturer of quality Stainless Steel in India and caters to 40% of the total demand for stainless steel in the country. Products ranging from Stainless Steel Slabs & Blooms, Flats, Paltes, Hot Rolled/ Cold Rolled Coils, Precision strips are produced as per international specifications . Jindal Strips Limited (JSL) attained its current shape after demerging the Raigarh unit (engaged in the manufacture of sponge iron which is currently a division of Jindal Steel & Power Ltd. ) in line with scheme of arrangement on 2nd April,1998. The cold rolling division at Vasind, Maharashtra was transferred to Jindal steel & Alloys Ltd, a 100 % subsidiary of JSL . After the de-merger, JSL has become a focused stainless steel company as depicted below :

$ 1.5 billion group headed by Mr. O.P. Jindal a great visionary of steel industry

JSL now a focused stainless steel company

RESTRUCTURING OF JINDAL STRIPS LTD IN 1998 Stainless Steel Division Hisar & Visakapatnam

JINDAL STRIPS LIMITED Focused Stainless Steel Company 100% subsidiary


Cold Rolling Division Vasind

Transferred to Jindal Steel & Alloys Ltd

Sponge Iron Division Raigarh





Regular capacity additon to meet growing demand

The company enjoys the benefit of having in house production facilities for High Carbon Ferro Chrome, a key ingredient for making stainless steel and also possesses in house mining rights for Chrome ore. The turnover of JSL has gone up to Rs. 1350 cr in FY02 from a Rs. 800 cr in FY99 post demerger of other divisions as above( a compounded growth rate of 18 %). Its stainless steel melting production has also gone up from 2.25 Lac MTPA in 1998-99 to 3.26 lac MTPA in FY02. thereby making it the largest integrated stainless steel manufacturer in India and among the top 15 in the world. During this period, Cold Rolling capacity witnessed a phenomenal 3 fold growth from 30,000 MTPA to 90,000 MTPA. The total melting capacity has increased from 2,50,000 to 4,00,000 MTPA. All these has been achieved under the dynamic leadership of Mr. Ratan Jindal (Vice Chairman & Managing Director) added by a team of experienced professionals like Mr. R.G. Garg, Mr. Arvind Parekh, Mr. N.C. Mathur and a host of other technocracts who have depth knowledge of steel industry.

GROUP PROFILEThe $ 1.5 billion Jindal group is headed by Mr. O.P. Jindal with primary interests in Steel and Power Sector. It is to the credit of Jindals that they are ranked sixth amongst the top Indian Business Houses in terms of their huge assets. The Jindal groups well known companies include, Jindal Strips, Jindal Steel & Power, Jindal Vijaynagar, Jindal Iron & Steel , Saw Pipes etc. All these companies are independent entities and are managed professionally. After the demerger of Jindal Strips in 1998, JSL is exclusively looked after by Mr. Ratan Jindal. The graphic picture of group companies is illustrated below :



Stainless Steel HR / CR Coils High Carbon Ferro Chrome



Sponge Iron, Power RUBM, MS slabs


HR/ CR Sheets, Integrated Steel Plant



Submerged Arc Welded Pipes





As on 30.09.2002 - Equity Capital : Rs. 18.91 croreResident Companies 20%

Institutions/ Banks/ Mutual Funds 2%

Promoter's & Associates 44%

Public 32%


Further, JSL has allotted 5.75% Euro Convertible Bonds for a total of $ 30 million to foreign investors on 17th December,1999. These bonds are convertible into equity shares at a predetermined price of Rs.124 per share, if not redeemed or converted before 17th December, 2004. The total outstanding amount is Rs. 146.49 cr. as on 31st March, 2002. Assuming that all the bond holders exercise their right to convert their bonds, than the total no. of equity shares to be allotted on conversion would be 118,13,710. This will result in the enhancement of equity capital from Rs. 18.91 cr. to Rs. 30.73 cr.

As on 01. 01. 2005 - Equity Capital : Rs. 30.73 croreCompanies 12% Institutions/ Banks/ Mutual Funds 1% Public 20% Promoter's & Associates 26%


In order to maintain the promoter stake, it is expected that bonds would be redeemed before the holders opt for conversion as company is expected to generate sufficient cash that too foreign exchange due to its booming export sales. This will also help in the reduction of the anticipated dilution of equity.JINDAL STRIPS LIMITED 4 DVP RESEARCH

DIVISIONSJSL currently has the following three divisions at two locations i.e. Hissar & Visakhapatnam in India.

HOT ROLLING UNITThe hot rolling unit comprising of steel melting shops, hot rolling mills (steckel mill, strip mill), finishing units, power plants and oxygen plants etc is situated at Hisar, the major manufacturing location of the company. It has an electric arc furnace of 2.50 lac MT capacity which operated at more than 130 % capacity to produce 3.26 lac MT of Stainless Steel in FY02. In order to meet growing demand locally as well as for exports, the capacity of this melting facility has been stepped upto 4.0 lac MT in FY03 and is even expected to go further upto 5.0 Lac MT in FY04. This significant increase in capacity would take JSL in top 10 stainless steel producers in the world. The tandem mill has a capacity of 1.5 lac MT . Its capacity utilisation was to the extent of 92 % in FY02 as against 147 % in the corresponding previous year. The reduced utilisation of tandem mill was on account of large exports of stainless steel slabs to USA , approx. 55, 000 MT, in FY02. However, the capacity utilization at Plate and Steckel mill has also gone up from 47 % in FY01 to 73 % in FY02. This mill has an installed capacity of 1.5 lac MTPA.

Integrated facilities and low cost of production gives JSL a high competitive edge.

COLD ROLLING UNITC apaciy t expansi i on n a val ue added segm ent

The cold rolling unit comprises of cold rolling, annealing & pickling lines and finishing facilities are also a part of the existing facilities at Hissar. The installed capacity of the plant has been inc