Q4 profit boost for Jindal Steel but Nuvama retains 'Reduce' call; here's why

Shares of Jindal Steel have received a 'Reduce' call from Nuvama Wealth even as the steel major swinged to profit in Q4 on a year-on-year basis. Jindal Steel reported a profit of Rs 1,045 crore against a loss of Rs 339 crore in the corresponding quarter last year. Consolidated revenue for the quarter rose 23 percent to Rs 16,218 crore.

Nuvama expects the company’s profitability to peak in Q1FY27 (EBITDA/tonne of Rs 13,000) amid higher steel prices. 

Subsequently, a fall in steel prices resulting from higher supply and lower demand shall negate higher volume benefits from Q2FY27. 

"We maintain FY27E/28E earnings. Retain ‘REDUCE’ with a TP of INR1,154, valuing at 7x FY28E EV/EBITDA. At CMP, the stock trades at 9.6x/7.3x FY27E/28E EV/EBITDA," said Jindal Steel. 

Jindal Steel clocked Q4 adjusted EBITDA of Rs 2650 crore (estimate: Rs 2400 crore), up 66% QoQ, and EBITDA/tonne of Rs 10,103, up Rs 3,117/t QoQ (on low base), driven by higher prices and volume. 

Jindal Steel's earnings were positively affected by the imposition of safeguard duty on some grades of imported flat steel, providing price support for its products.

Sales in Q4 rose 15 percent sequentially to 2.62 million tonnes, while output for the reported period rose to 2.65 million tonne, a growth of 6 percent over Q3.

Nuvama said benefits of higher steel prices for the firm would peak in Q1FY27. It expects benefit of higher steel realisation to offset higher RM cost in Q1FY27, thereby raising EBITDA/tonne by Rs 3,000 plus QoQ. 

"However, with expectation of steel prices peaking out with downside risk emerging from lower demand and recovery in steel production, its profitability is likely to peak out," said Nuvama.