Jindal Steel capacity ramp-up and value-added mix support earnings growth outlook

Investment View and Key Drivers

Motilal Oswal Financial Services reiterated its Buy rating on Jindal Steel following operating outperformance in 1QFY27. The broker believes the recent expansion of crude steel capacity to 15.6 mtpa provides substantial headroom for earnings growth. Its positive view is also supported by expected volume recovery, a rising value-added product mix, cost reductions and the safeguard duty, which is expected to support steel prices and margins amid input-cost volatility.

1QFY27 Financial Performance

Jindal Steel reported 1QFY27 revenue of Rs 15,480 crore, up 26% year on year but down 5% quarter on quarter. Revenue was 10% above Motilal Oswal's estimate, driven by stronger-than-expected volumes and net sales realisation. Sequential revenue declined because of muted volume.

Adjusted EBITDA was broadly flat year on year and 10% lower quarter on quarter, but exceeded the broker's estimate. EBITDA per tonne was also above estimates. Higher coking-coal costs of US$23 per tonne quarter on quarter were partly offset by stronger realisations and cost discipline. Adjusted PAT was below estimate because of higher tax outgo.

Production, Sales and Realisation

Production in 1QFY27 was 2.4 mt, up 15% year on year but down 10% quarter on quarter. Sales volume stood at 2.23 mt, up 17% year on year and down 15% quarter on quarter. Planned maintenance shutdowns led to the sequential decline in production and sales. Exports represented 9% of sales, compared with 5% in 4QFY26.

Flat-steel average selling price improved by about Rs 7,000 per tonne quarter on quarter, while long-product average selling price rose by about Rs 4,500 per tonne. These improvements lifted net sales realisation by 7% year on year and 12% quarter on quarter to Rs 69,427 per tonne.

Capacity Ramp-up and Volume Outlook

Management reiterated FY27 steel-sales guidance of 10.5–11.0 mt and expects the first-quarter shortfall caused by the planned BOF shutdown to be recovered in subsequent quarters. Jindal Steel is targeting initial utilisation of about 11.5 mt of its 15.6 mt capacity, followed by 12.5–13 mt through debottlenecking and operational improvement. It plans to use external metallics such as HBI, DRI and scrap to unlock further capacity.

At Angul, Blast Furnace-I is operating at about 11 ktpd, above its rated capacity of 10 ktpd. Blast Furnace-II has achieved about 11 ktpd of hot-metal production. Management is targeting 12 ktpd after the monsoon and its 13 ktpd design capacity by December 2026. This would take total Angul hot-metal production to about 24 ktpd by end-CY26.

Value-Added Products and Cost Reduction

Management is shifting future capacity additions towards specialty and engineered steel rather than conventional HRC or rebar. Value-added products accounted for 66% of 1QFY27 sales, compared with 61% in 4QFY26. Management expects the mix to improve further as newly commissioned downstream facilities stabilise.

Management expects long-steel demand to recover after the monsoon and believes the diversified portfolio allows the company to shift towards higher-value products when construction-steel demand is weak. It is targeting structural operating-cost reduction of about Rs 1,000 per tonne over the medium term through productivity improvements, higher yields, power savings, coal blending and operational efficiencies.

Captive coal utilisation was about 50%, while captive iron-ore usage increased to about 28% from about 16% in 4QFY26. The FY27 exit target for backward integration is about 40%.

Cost Pressures, Leverage and Funding

Near-term pressure points include a further expected US$12–15 per tonne rise in coking-coal costs in 2QFY27, iron-ore costs that were Rs 500 per tonne higher in 1QFY27, and Middle East disruptions that added US$12–13 per tonne to raw-material costs. Shutdown-related operating-leverage costs were about Rs 2,000 per tonne.

Management expects costs to decline from 2QFY27 as utilisation rises and the slurry pipeline is commissioned. Consolidated net debt was Rs 15,900 crore in 1QFY27, broadly unchanged from Rs 16,000 crore at March 2026. Net debt to EBITDA increased to 1.71 times from 1.66 times. Motilal Oswal expects the remaining capex to be funded from internal accruals and net debt to EBITDA to remain below 1.5 times.

Estimates and Valuation

The broker retained its estimates, apart from raising FY27 revenue by 1% and reducing FY27 PAT by 3%. Its Rs 1,200 target price is based on 7.5 times FY28E EV/EBITDA.

At the report CMP, the stock traded at 6.8 times FY28E EV/EBITDA.