Jindal Steel’s VAP mix and slurry pipeline underpin margin-led growth

Investment View and Valuation

Anand Rathi Research maintained its BUY rating on Jindal Steel in its July 26, 2026 result update and retained its target price of Rs1,410. The broker views the recent key management personnel rejig as signalling a more disciplined “Earn and Invest” capital-allocation strategy, focused on raising capacity utilisation, expanding high-margin value-added products (VAP), reducing leverage and shifting away from commoditised steel products.

The target price is based on 7x FY28E EV/EBITDA, in line with the stock’s long-term-average multiple.

Q1 FY27 Financial Performance

Jindal Steel reported Q1 FY27 sales volume growth of 17.4 per cent year on year to 2.23 million tonnes. Revenue rose 25.9 per cent year on year to Rs15,500 crore, above Anand Rathi’s estimate, supported by average selling prices of Rs69,427 per tonne, which were Rs3,481 per tonne above the broker’s estimate.

EBITDA fell 11.5 per cent year on year to Rs2,660 crore, while EBITDA per tonne was Rs11,930, in line with Anand Rathi’s expectation. A planned maintenance shutdown caused about 0.3 million tonnes of production loss in Q1 FY27 and generated a temporary operating-cost impact of about Rs2,000 per tonne. Management expects the lost production to be recovered in Q2 FY27.

VAP Mix and Raw-Material Integration

The broker identifies product mix as an important earnings driver. VAP share increased to 66 per cent in Q1 FY27 from 61 per cent in Q4 FY26. Jindal Steel’s portfolio serves railways, metros, defence and other specialised applications. Anand Rathi expects government-led import substitution and expanding capacity to support a further increase in VAP share.

Captive iron-ore integration improved to 28 per cent in Q1 FY27 from 16 per cent in Q4 FY26. Management guided for about 40 per cent captive integration at the FY27 exit run rate.

The company has started the 3 million-tonne Roida-I mine to address lower evacuation from the Tensa mine. Dispatches from Utkal B1 are expected to improve raw-material integration and reduce cost volatility.

Slurry Pipeline and Logistics Savings

Jindal Steel’s 192-km, 18 million-tonne slurry pipeline is expected to commence operations by mid-to-end August 2026 after pump and receiving-station trials, followed by water trials.

Anand Rathi expects logistics savings of about Rs700 per tonne once the pipeline is operational, factoring partial benefit into FY27E and full benefit into FY28E. The pipeline could be debottlenecked to transport up to 20 million tonnes through a lower-water slurry mix.

The pipeline is intended to support raw-material supply for a 12 million-tonne pellet facility and an upcoming 5 million-tonne sinter facility.

Capacity Ramp-Up and Volume Outlook

Angul BF-I is operating at about 11,000 tonnes of hot metal per day, or 110 per cent capacity. Management expects Angul BF-II to ramp from 11,000 to 13,000 tonnes per day by December 2026.

Together with Raigarh blast-furnace capacity, total hot-metal output is expected to exceed 30,000 tonnes per day by December 2026, supporting progress towards 100 per cent capacity utilisation. Installed steel capacity has risen by 6 million tonnes to 15.6 million tonnes.

Anand Rathi expects sales volume to reach 10.8 million tonnes in FY27E and 12.2 million tonnes in FY28E.

Earnings Outlook and Estimate Revisions

Near-term headwinds include a projected US$15 per tonne increase in coking-coal cost in Q2 FY27 and weaker steel prices, with average realisations expected to decline by about Rs5,000 per tonne.

Anand Rathi expects these pressures to be largely offset by the reversal of shutdown costs, more than 0.3 million tonnes of incremental sales, initial slurry-pipeline savings, higher captive-port throughput and a richer VAP mix. The broker estimates Q2 FY27 EBITDA per tonne of about Rs10,250 to Rs11,250.

FY28E EBITDA is estimated at Rs20,583 crore, with an EBITDA margin of 25.2 per cent and EBITDA per tonne of Rs16,882.

Leverage, Capex and Key Risks

Net debt to EBITDA was 1.71x in Q1 FY27 versus 1.66x in Q4 FY26. Management reiterated its intention to reduce this ratio below 1.5x by Q2 FY27, aided by lower borrowing costs, improving cash flow and a largely completed expansion cycle.

Cumulative expansion spend is Rs37,500 crore against announced capex of Rs47,000 crore. Anand Rathi expects the remaining capex to be calibrated and largely funded through internal accruals.

Key risks identified by the broker are:

• Higher coal costs.
• Lower VAP offtake.
• Lower steel prices.