Jindal Steel’s capacity push is in place. Volume growth needs to follow now
Jindal Steel is betting big on its new facilities. If volumes ramp up as planned and costs reset as expected, the steel major's earnings profile could transform by FY28.
The Jindal Steel Ltd stock is up a modest 6% over the past year, meaningfully underperforming the broader markets. The company is in a transition phase where near-term earnings pressure is colliding with a capacity expansion that is yet to fully yield results.
The immediate drag is coming from steel prices. Domestic oversupply and softer demand have squeezed realizations just as input costs have moved higher. Domestic steel prices in Q3FY26 to date are down 2-5% quarter-on-quarter, according to Antique Stock Broking.
The impact is most visible in profitability. After Ebitda per tonne fell to ₹10,027 in Q2FY26, down 12.7% year-on-year and 36% sequentially, Nuvama Research expects a further decline in the December quarter (Q3FY26), to about ₹8,200. Ebitda is short for earnings before interest, taxes, depreciation, and amortization.
That implies a sequential drop of nearly ₹1,800 per tonne, driven by higher coking coal and iron ore costs. “Steel spreads are likely to weaken, but bottom in Q3FY26," the brokerage said in its December visit note, adding that recovery should begin only from Q4FY26 as prices stabilize. This is the trough the market is currently fixated on.
Capacity expansion
As far as capacity addition is concerned, since September, Jindal Steel has commissioned 3 million tonnes per annum (mtpa) of new capacity, taking crude steel capacity to 12.6mtpa. Another 3mtpa is scheduled to come on stream by March, lifting the capacity to 15.6mtpa. Utilization remains low at around 40-45%, reflecting the early stage of ramp-up rather than a demand constraint. A timely ramp-up is central to the company’s volume outlook. Jindal Steel reiterated its FY26 sales guidance of 8.5-9mt. With H1FY26 volumes at about 3.8mt, this implies a sharp acceleration in the second half.
The management remains confident of achieving at least the lower end of the guidance, supported by stabilizing operations at new facilities and a seasonally stronger March quarter.
Given the company’s struggle with capacity constraints in recent years, a bigger shift lies beyond FY26 as the company enters a volume-led phase with capacities coming on-stream. Nuvama expects steel sales volumes to grow at a 17% compound annual growth rate over FY25-28, reaching about 12.7mt by FY28.
Earnings drivers
In this phase, earnings growth is driven primarily by volumes rather than a sharp rebound in prices. Also, a reset in the cost structure should aid. Several structural levers are nearing completion, including higher captive coal usage, commissioning of the slurry pipeline to reduce logistics costs and incremental captive power capacity. Together, these lower the marginal cost of incremental volumes, improving operating leverage even in a stable pricing environment.
Plus, the product mix has turned favourable: value-added steel accounted for over 73% of the sales mix in Q2FY26 versus 58% during Q2FY25, offering some insulation from commodity volatility.
Meanwhile, heavy capex has weighed on free cash flow so far in FY26, but as spending tapers and volumes rise, leverage is projected to fall sharply. Net debt-to-Ebitda is expected to move well below 1x over the next two years from 1.5x currently. With business moving past a capital-intensive phase of its transition, if volumes ramp up as planned and costs reset as expected, Jindal Steel’s earnings profile by FY28 could look materially different from today.
topics
