Jain Resource Recycling targets margin growth through value-added copper products and domestic scrap sourcing

Investment View and Valuation

Motilal Oswal Financial Services retains a Buy rating on Jain Resource Recycling and values the company at 25x FY28E EPS, implying a target price of Rs 460. The positive view is based on the company’s position in the growing organised recycling industry, expected demand for recycled or green metals, regulatory support for organised recyclers and its move towards higher-value copper products.

The broker expects revenue, EBITDA and adjusted PAT to grow at compound annual rates of 33%, 26% and 36%, respectively, over FY26-FY28.

1QFY27 Operating Performance

Jain Resource Recycling’s 1QFY27 operating performance was below Motilal Oswal’s expectations despite strong year-on-year growth. Consolidated revenue increased 76% year on year to Rs 2,724.5 crore, exceeding the broker’s estimate of Rs 2,447.4 crore, led by a 2.6x increase in copper business revenue.

However, EBITDA rose 22% year on year to Rs 109.5 crore, below the estimate of Rs 138.7 crore, while adjusted PAT increased 21% to Rs 69.6 crore against the estimate of Rs 92.1 crore. EBITDA margin declined by around 180 basis points year on year to 4.0%, compared with the estimated 5.7%, as gross margin contracted by 380 basis points to 6.2%. Blended EBITDA per tonne nevertheless increased 21% year on year to Rs 22,340.

Segment Performance and Near-Term Constraints

The main near-term constraint was scrap shortages linked to the West Asia crisis, along with elevated logistics costs and commissioning costs for the new copper anode plant.

• Lead: Revenue grew 10% year on year to Rs 790 crore, although sales volume declined 12% to 32.2 thousand tonnes. Lead EBITDA per tonne improved 24% year on year and 6% sequentially to Rs 18,660.
• Copper: Revenue reached Rs 1,840 crore, with volume increasing 73% year on year to 14.7 thousand tonnes. Segment EBITDA per tonne was Rs 31,027, down 19% year on year. Ex-anode copper EBITDA per tonne improved 2.3x sequentially to Rs 32,300.
• Aluminium: Revenue declined 20% year on year to Rs 71.4 crore, while volume fell 38% to 2.2 thousand tonnes. EBITDA per tonne increased 2.6x to Rs 21,197.

Copper Expansion and Value-Added Products

Management said the copper anode facility was commissioned in 1QFY27 and sold around 600 tonnes. Copper cathode commissioning is on track for 2QFY27, while wire rod and busbar/profile projects are planned for 3QFY27. The C&Y joint venture has begun trial production, adding 25 thousand tonnes of copper-processing capacity.

Management expects healthy FY27 copper volume growth. Following stabilisation, value-added products are expected to add around 200 basis points to copper margins and generate incremental EBITDA of around Rs 25,000 per tonne at full utilisation.

Scrap Sourcing, Capacity and Regulatory Support

Management is strengthening domestic scrap sourcing to reduce import dependence and expects lead scrap availability to improve when geopolitical conditions normalise. It is targeting a 15-20% increase in lead-recycling capacity and expects FY27 lead volumes to improve. The recent furnace incident is not expected to have a material production impact.

Management also sees an adjacent telecom infrastructure opportunity through the removal of redundant underground copper cables and optical-fibre deployment. Regulations requiring at least 5% recycled content from FY28 and the collection of end-of-life products through registered recyclers could support scrap availability, volumes and margins. However, management acknowledged that competition in copper and lead recycling may increase.

Revised Financial Estimates

Motilal Oswal reduced its FY27E and FY28E adjusted PAT estimates by 10% and 9%, respectively, following the 1QFY27 miss.

Key Risks and Watchpoints

• Prolonged raw-material shortages and logistics disruption arising from the West Asia conflict.
• Ramp-up costs and execution risk associated with the new copper facilities.
• Increasing competitive intensity in copper and lead recycling.
• Quarterly volatility caused by inventory movements, shipment timing and hedge accounting.

Material worth around Rs 20-30 crore remained on vessels because of logistics disruption. Management did not expect any material loss, detention charges or damage.