Stock to buy today: Nuvama sees 40% upside in JTL Industries share price in 12-month. Buy or sell?

Stocks to buy today: JTL Industries share price has remained in the base building mode for the last four months. However, JTL Industries shares are dropping signs of coming out of the sideways trend. The stock has risen from around ₹197 to ₹215 apiece mark in one week, and global brokerage Nuvama has initiated coverage on the scrip. In its report, Nuvama researchers see that JTL Industries share price will touch the ₹303 per share mark in the next 12 months. The brokerage has given 'buy' rating to JTL Industries shares predicting an upside of around 40 percent [{(303-215)/215} x 100].

Triggers for JTL Industries share price

Highlighting the fundamentals of JTL Industries, Nuvama said, "JTL Industries (JTL) is among the fastest-growing steel tube manufacturers in India. With capacity addition underway (mainly value-added), JTL has been consolidating its position via volume and margin expansion. Enhanced organic and inorganic capacity has aided volume/EBITDA/PAT expansion at a CAGR of 43%/45%/50% over FY19– 24. We forecast the PAT CAGR would be a robust 38% over FY24–27."

Capex expansion to drive robust growth

"With India's structural tubes market (6% of total steel) aligning with the global average (10% of total steel), uptake of structural tubes is on the rise. JTL has been efficiently utilising warrants and QIP to build up capacity, including via bolt-ons. With capacity projected to grow from 0.75mtpa to 1mtpa by FY25E and 2mtpa by FY28E, JTL is targeting a volume CAGR of 29% over FY24–27E. This should also help it capture incremental market share. Apart from black pipes, the company continuously improves its product basket to include more VAP, such as bigger sections (up to 350*350), colour-coated and GI pipes. This not only improves profitability but also widens the customer base, which helps JTL cater to customers across the globe," the brokerage said.

Focusing on VAP to strengthen margins

Nuvama added that JTL has a diversified network and pan-India capacities, which has helped it expand its margins. The company is on track for the next leg of margin expansion. Out of the incremental capacity over the next two years, ~50% would be equipped with Direct Forming Technology (DFT), which shall enable it to produce various sizes of hollow sections without roll change, thereby not only increasing production efficiency and utilisation but also the share of value-added products. JTL is targeting its share of value-added products to reach 55% by FY26E, driving up its EBITDA/tonne.

JTL Industries share price target

On the suggestion to stock market investors regarding JTL Industries' share price, the Nuvama research report said, "JTL is on a fast-growth trajectory given: i) an earnings CAGR of 38% (FY24–27E) driven by capacity addition; and ii) multiple margin levers driving EBITDA/tonne. The company is reducing working capital and, hence, improving its OCF. Better OCF and a net debt-free balance sheet are the key positives. The anticipated strong growth makes a compelling argument for us to assign a target Q1FY27E PE of 25x, yielding a TP of INR 303; initiate at 'BUY'."

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.