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Strong Results Meet Cautious Analyst View
Jindal Steel and Power Ltd. (JSPL) reported strong operational results for Q4 FY26, with significant revenue and EBITDA growth. However, IDBI Capital adopted a cautious stance, downgrading its rating. While the company's performance shows underlying strengths and capacity expansions, the brokerage's move to 'Hold' indicates a reassessment of valuation multiples and potential challenges ahead.
Q4 Performance and the Downgrade
JSPL ended FY26 with a strong Q4. Revenue rose 24% quarter-on-quarter to ₹16,200 crore, driven by a 15% increase in sales volume from new capacities and an 8% rise in net selling realization (NSR) due to higher steel prices. EBITDA margins grew 558 basis points to 18.1%, resulting in an 80% EBITDA increase to ₹2,900 crore. This was supported by no plant startup costs and better efficiency, pushing EBITDA per tonne up 57% to ₹11,218, despite moderate increases in coking coal costs. Yet, IDBI Capital downgraded JSPL to 'Hold' with a ₹1,303 target price. This valuation, based on an 8x EV/EBITDA multiple for FY28 estimates, suggests concerns that valuation might overshadow current earnings growth.
Sector Strength Clashes with Valuation Worries
JSPL's results emerged as India's steel sector strengthens. India is expected to drive global steel demand growth (around 9.2% for FY27), fueled by government infrastructure spending and capital expenditure. This outlook supports steel prices, aided by safeguard duties, though input costs like coking coal remain a factor. Despite positive sector trends, JSPL's valuation draws scrutiny. Its trailing twelve-month P/E ratio (33.4x-38.47x as of May 2026) is higher than the industry average of 30x. Competitors Tata Steel trade at 28.91x P/E, and JSW Steel at 39.81x P/E. JSPL's market cap is about ₹124,845 crore. While its net debt to EBITDA ratio (1.66x as of March 2026) suggests healthy leverage, IDBI Capital noted a ₹600 crore increase in net debt to ₹16,000 crore in Q4 FY26, possibly contributing to the cautious outlook.
Analyst Focuses on Debt and Valuation Risks
IDBI Capital's 'Hold' rating emphasizes its critical view of JSPL's valuation and debt. Despite capacity expansion and improved efficiencies, the ₹16,000 crore net debt needs monitoring, particularly with volatile commodity prices. JSPL aims to boost its flat steel share to 70% from 50%, a strategy navigating a competitive market. Rivals like JSW Steel have greater capacity, and Tata Steel offers premium products and green steel tech. The sustainability of current margins amid fluctuating coking coal costs and competition is a key risk. Trading at a premium valuation, the stock needs consistently high performance to meet investor expectations.
Analyst Opinions Diverge on JSPL's Future
Despite IDBI Capital's caution, JSPL management targets sales volumes of 10.5-11.0 million tonnes in FY27, indicating confidence in continued growth, mainly from the Angul facility expansion. Other analysts remain positive. MOFSL keeps a 'Buy' rating with a ₹1,400 target (11% upside), ICICI Direct upgraded to 'Buy' with a ₹1,410 target, and Nomura and Antique Stock Broking also rate it 'Buy' (targets ₹1,280 and ₹1,171 respectively). This analyst divergence reflects the ongoing discussion between valuation concerns versus the sector's growth prospects and JSPL's operational delivery.