JTL Industries - A Structural Growth Story: Axis Securities Initiates Coverage With A 'Buy' Rating

Axis Securities Report

Investment Rationale:

JTL Industries Ltd. has been operating in the structural steel tubes and pipes business for the last 30 years, led by an experienced management team with over 30 years of experience in the steel and pipes industry.

The company manufactures electric resistance welded black and hollow steel tubes and pipes. It also sells solar module mounting structures/panels and hot dipped galvanised steel tubes and pipes which are value-added products having higher premiums compared to the commercial ERW pipes.

JTL continues to expand its capacity and has increased it to 0.586 million tonnes in FY23 from 0.4 million tonnes in FY22. It has been successful in expanding its footprints globally with over 1,000 client-centric stock keeping units. The company currently exports its products to five continents in over 20 countries and has a strong domestic distribution network of 800 plus distributors.

JTL has four state-of-the-art manufacturing facilities dispersed geographically across India. This allows the company to source raw materials at competitive prices as well as enable it to expand its sales and footprint in domestic and international markets.

The Indian structural tubes market has the potential to grow from ~13 million tonnes in CY23 to 22 million tonnes by CY30, led by the government’s thrust on developing infrastructure, which will result in a shift towards robust demand for structural steel.

Valuation and Recommendation

With the volume expansion capex going on, the company’s return on equity and return on capital employed are expected to moderate but would remain decent near 20% over FY24-26E.

We initiate coverage on JTL with a 'Buy' rating and value it at 22 times its FY25 earnings per share to arrive at our one-year forward target price of Rs 470/share, implying an upside potential of 36% from the current market price.

We see 22 times as a reasonable valuation for JTL given its healthy return ratios despite being in an aggressive growth capex stage.

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