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Multipie weekly #27 curated reads for investors

Hello👋This week we covered- Market snapshot, Why there is great potential in the stainless steel industry & explained the Rebound in Jindal Stainless Ltd followed by interesting visuals & curated reads.

1. Market snapshot

The market has been acting like a seesaw since last month. This week,  all the sectors were up. Real estate, Materials/Commodities & Industrials gained the most by 4.7%, 3.3% and 3% respectively. 

Interestingly, if we look at the last 1 month,  1 year and 3-year trend, the Power sector has been the top gainer.

Microcap gained the most last week comparatively i.e. by 5.3% but if we look at 3-year duration, it has been the most underperforming segment among all.

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2. Rebound in Jindal Stainless Ltd

Since announcing the demerger of Hisar segment due to hefty debt of ~11,000 crs & going through a restructuring in 2014; to now again announcing the merger, Jindal stainless Ltd has come a long way! The developments show in the up-gradation of credit rating to A+ by CARE.

I came across a recent tweet by Abhyuday Jindal – MD of Jindal Stainless on the structural shift happening towards stainless steel & turnaround story of Jindal Stainless Ltd. This made me curious to deep dive into the company & the industry’s potential.

So what has changed now? 

  1. Consideration of Life cycle cost of projects: For large infra costs, Govt. and private players are now considering the life cycle cost (initial investment cost + the maintenance, replacement costs etc).

Earlier, carbon/ mild steel was used for constructing railways or pipelines and it had to be replaced every 4-5 years. However, stainless steel is corrosion-resistant, durable, a cleaner option (recyclable) & need not be replaced before 20-25 years. 

Due to this benefit, demand is shifting towards the same. Sample extract below:

Source: ABB India FY20 Annual report

Also, the Total addressable Market of stainless steel is expanding from utensils & razor chips towards value-added products such as pharma equipment, fuel/water tanks & all the places in infrastructure where normal steel was used – creating a large scope of volume growth of stainless steel over other metals. 

Source- Jindal stainless steel concall

Similar value migration towards stainless steel has already played out in many countries such as Singapore & Japan and the first stainless foot over bridge in India on Bhayandar station will start operating soon

  1. Not just industry demand, company individually also has been working continuously to take advantage of opportunities by:
  • In stainless steel, out of all the raw materials, nickel price is very volatile and to reduce the cost volatility, the company has been diverting its exposure towards an emerging category- 400 series of steel which is completely nickel-free (constitutes ~30% of total products sold compared to 10% ~3-4 years ago).

The results of all this are very evident in the EBITDA and EBITDA margins of the company which has been stable now for the last 4 years. 

  • Cleaning up of balance sheet:

Total debt of Jindal stainless steel & Jindal Stainless (Hisar) steel has reduced from ~12,341crs in FY15 to 4,635crs in FY21. 

PS: You can see the complete dashboard on Multipie to see trends of key metrics. Download here and check it out!

  • Capacity expansion: 

The company is almost doubling its capacity by spending ~1,780crs. Earlier when the facilities were set up, the company incurred 3x times the current cost for the same level of additions in capacity. 

This indicates that it is very difficult for a new competitor to enter the market as the initial investment is very high and very difficult to survive till economies of scale kick in. 

  • Value-added products: Through the Hisar segment, the company has been entering the value-added product segment as discussed above. 

Also, raw materials- ferrochrome, scrap & warehouses are not available easily due to which existing players like Jindal stainless which have been in the market for decades have an edge. 

So, after the merger of both the entities, the company will be very well poised to take advantage of the industry potential as via stainless business it will serve as high volume, low-cost producer and via Hisar segment, it will be serving new applications of stainless steel. 

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3. Visuals of the week:

3.1 Bond yields are not yielding anything across many countries!

Interest rates have been falling globally for 30 years. The cost of capital is at ~0% currently- with global debt ballooning to unsustainable levels, don’t see any other way!

3.2 Financial sector’s ROE finally recovering after years of underperformance!

Source- Motilal Oswal 

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4. Good reads of the week:

4.1 An interesting thread on “Why Quality Triumphs in India & how to benefit from it”. 

4.2 An insightful piece by Mystic wealth on how there’s a gap between the CAGR’s mutual funds claim and the actual returns generated by the investors

4.3 Good article by Economic times on “India plans 76,000cr red carpet party for semiconductor companies” 

4.4 MapMyIndia IPO is open till 13th Sept and we did a detailed analysis on the company here with our view on whether to subscribe or not here.

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5. Multipie interactions of the week:

Multipie community is getting powerful every day with so many interesting insights & questions answered by the community on investing, personal finance, market & company updates exclusively on our platform.

You can read a few posts here:  

  1. Learnings from biggest winner & loser companies in the portfolio by Sahil Sharma.
  1. Falak Kalyani shared his rationale of why he has added HDFC AMC & Gillette India ltd to his watchlist. You can read the same here.
  1. Triveni turbine’s quarterly order book at the highest levels. I shared Triveni turbine’s Revenue v/s Order book trend here
  1. Pankti explained how there is no upper limit to claim tax deduction under section 80E. You can read the post-in-depth here.
  1. Abhishek has started a very interesting daily series called “What’s hot on twitter-verse” exclusively on Multipie. Follow him for interesting updates. 

And not just this! the company dashboards are also live on our platform so hop on and download the app by clicking here if you haven’t yet. 

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That’s all for this week. Please share with your peers if you found this helpful and subscribe to start receiving the weekly digest in your mail! Happy weekend!

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