Jindal Steel targets VASP ramp-up and slurry-pipeline savings after strong volume growth

Investment View and Growth Drivers

In its July 27, 2026 Q1FY27 result update, Prabhudas Lilladher maintained its BUY rating on Jindal Steel. The broker views the ramp-up of Angul operations, a rising value-added steel product mix and planned cost savings as the next leg of growth.

The investment case is supported by improved capacity utilisation, expansion of the value-added products portfolio, greater captive raw-material integration and commissioning of the slurry pipeline. The broker expects EBITDA CAGR of over 40 per cent from the low FY26 base.

Q1FY27 Operating Performance

Jindal Steel reported a healthy Q1FY27 operating performance, led by volume growth, higher net sales realisation and a better product mix. Sales volume rose 17.4 per cent year-on-year to 2.23 million tonnes, above the broker's estimate of 2.13 million tonnes, as blast furnace, BOF2 and BOF3 ramped up at Angul. Production increased 15 per cent year-on-year to 2.4 million tonnes.

Consolidated revenue increased 26.1 per cent year-on-year to Rs 154.76 billion, 12.7 per cent above the broker estimate. Realisation rose 14.2 per cent sequentially to Rs 69,400 per tonne, aided by stronger flat and long steel prices and a richer value-added product mix. Value-added steel accounted for 66 per cent of Q1FY27 sales, compared with 61 per cent in Q4FY26. Exports contributed 9 per cent of volumes, or 0.21 million tonnes, versus 5 per cent in Q4FY26.

Margins and Profitability

Higher input costs offset the operational gains. Adjusted EBITDA was Rs 26.54 billion, down 11.1 per cent year-on-year but 7.9 per cent above Prabhudas Lilladher's estimate. EBITDA margin stood at 17.2 per cent, compared with 24.3 per cent a year earlier. EBITDA per tonne declined 24.2 per cent year-on-year to Rs 11,903, although it rose 17.8 per cent sequentially.

The decline in profitability reflected a US$23 per tonne rise in coking coal costs, Rs 500 per tonne higher iron-bearing costs, a US$12 to US$13 per tonne impact from Middle East-related disruptions and Rs 2,000 per tonne of shutdown-related costs. Adjusted PAT was Rs 8.39 billion, down 43.1 per cent year-on-year and below the broker's Rs 9.5 billion estimate, principally because other income was lower.

Production Guidance and Angul Ramp-up

Management retained FY27 guidance for production of 11.0 to 11.5 million tonnes and sales of 10.5 to 11.0 million tonnes. An advanced maintenance shutdown created a 0.3 million tonne production shortfall in Q1FY27, which management expects to recover during the remaining quarters.

Management expects Angul's blast furnace to reach 100 per cent capacity utilisation by December 2026. Inventory was lean at 10 to 11 days of production. Captive iron-ore use reached 28 per cent and is targeted to reach 40 per cent by the FY27 exit, while coal dispatch from Utkal B1 began during the quarter.

Cost Savings and Capital Expenditure

Management expects another US$15 per tonne increase in coking coal costs in Q2FY27. However, it expects the absence of shutdown costs, higher production, operating leverage, pipeline-related logistics savings and other cost actions to support sequential margins.

The company is targeting Rs 1,000 per tonne of controllable cost reduction over the medium term, including Rs 700 per tonne from the slurry pipeline. The 192 km pipeline, with 18 to 20 million tonnes per annum capacity, is mechanically complete, but commissioning has been delayed to August 2026, subject to monsoon conditions.

Management retained FY27 capex guidance of Rs 85 billion, with Rs 19.6 billion spent in Q1FY27. Cumulative expansion capex was Rs 375 billion out of Rs 470 billion announced. The company intends to prioritise asset sweating, debottlenecking and downstream value-added expansion rather than aggressive greenfield capacity additions. This includes raising plate capacity from 2 million tonnes to 2.5 million tonnes.

Earnings Estimates and Valuation

Prabhudas Lilladher reduced its FY27E EBITDA estimate by 6.8 per cent to Rs 123 billion and FY27E EPS estimate by 11.5 per cent to Rs 52.5, reflecting lower assumed long-product pricing. It raised its FY27E sales estimate by 2.2 per cent to Rs 685 billion.

The target price is Rs 1,298, revised from Rs 1,295. It is based on 7.5 times March 2028E EBITDA of Rs 185.59 billion.

Key Monitorables and Risks

• Execution of the Angul ramp-up and achievement of targeted capacity utilisation.
• Delivery of planned controllable cost savings and operating leverage benefits.
• Commissioning of the slurry pipeline, subject to monsoon conditions.
• Steel spreads and seasonal weakness in long steel demand and prices.
• The Mauritius subsidiary's negative net worth of Rs 1.43 billion, which remains under going-concern emphasis by auditors.