Jindal Steel plummets 8% as delay in capex seen hurting volume growth – ET Infra

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Shares of Jindal Steel and Power saw major selling on Wednesday as a delay in the company’s capacity addition plan is seen hurting its volume growth even as peers are geared to take on the strong demand momentum for steel in the domestic market.

The steel-maker’s shares saw their sharpest intraday fall in nearly 18 months to close at their lowest level in about four months at 585.05 rupees on the NSE, down 7.7% from the previous close.

While analysts have cut the target price for the shares by 2-14%, most of them have retained their positive rating, and believe that the current weakness can be used as an opportunity to buy the shares given that long-term growth levers remain intact.

Jindal Steel’s schedule for its major capital expenditure programs has been pushed by six months, with most of them slated for commission only by the last quarter of 2024-25 (Apr-Mar). The company has also raised its outgo by nearly a third to 31,000 crore rupees because of changes in the scope of work and some other reconfiguration.

“We believe these could be construed as uncertainty in the expansion plan and cause further delays,” analysts at CLSA Asia Pacific Markets said in a note, maintaining an ‘underperform’ rating for the shares.

The current delay in commissioning of projects will lead to 10-15% lower volumes than what was earlier anticipated, analysts said. This comes at a time when demand for steel is seen growing in double digits for the third year in a row in FY24, and is seen growing in high single-digits over the next few years.

Jindal Steel is doubling capacity at its 6-million-tonne Angul plant. The enhanced capacity, along with the plant at Raigarh will see the steel-maker’s capacity rise to nearly 16 million tonne by 2024-25 (Apr-Mar).

“Though ongoing capex is going to shift JSP’s product portfolio to higher VAP (value added products), extension in capex timeline along with an increase in cash outflow will continue to put pressure on the cash flow. The timely completion of capex is crucial for volume growth ahead,” analysts at Motilal Oswal Securities said.

  • Published On Nov 2, 2023 at 01:11 PM IST

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