by Trade Brains | Apr 26, 2024 | Case Study, Financials, Market | 1 comment
The steel sector in India has attracted considerable attention due to its significant impact on diverse industries and India’s ambitious aim of becoming a dominant manufacturing power, as evident from initiatives like Make in India. Glass Curtain Wall
The iron and steel pipe sector plays a crucial role in advancing the nation’s infrastructure, supporting various endeavours such as river interlinking and supplying clean drinking water to households.
In line with this, it is forecasted that the Indian stainless steel pipe industry will grow at a CAGR of 4.5% from 2022 to 2027. Accounting for about 2% of the nation’s GDP, India currently holds the position of the world’s second-largest producer of crude steel and is poised to overtake China as the second-largest steel consumer.
This presents an opportunity to this small cap company, JTL Industries, which produces various steel tubes and pipes. Over the last three years the company has given a multibagger return of 310 percent.
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Moreover, the company is dedicated to expanding its capacity. It recently obtained a controlling interest in Nabha Steels and Metals, thereby gaining ownership of an advanced steel product manufacturing plant.
This newly acquired facility has a production capacity of 200,000 tons and specializes in manufacturing various steel products, including coils and long steel products such as billets, as per the company’s announcement. So should you own this company? Well, let’s delve into this article to find out.
JTL Industries, formerly known as JTL Infra Limited, is a prominent player in the structural steel tubes and pipes sector with a rich three-decade history in the industry.
JTL specializes in manufacturing ERW black and hollow steel tubes and pipes. Alongside these core products, the company has diversified its offerings to include value-added products like solar module mounting structures/panels and hot-dipped galvanized steel tubes and pipes.
Operating from four modern manufacturing facilities strategically positioned across India, JTL has two plants in Punjab: one in Gholu Mazra (Chandigarh) with a capacity of 100,000 MTPA and another in Mandi Gobindgarh (Punjab) with a capacity of 150,000 MTPA.
In Maharashtra, the company operates a plant in Mangaon boasting a capacity of 200,000 MTPA, providing access to ports for exports. Additionally, following an amalgamation with its promoter-held Chetan Industries, JTL has recently acquired a plant in Raipur with a capacity of 100,000 MTPA.
JTL runs a significant facility primarily focused on the production and export of galvanized steel tubes/pipes, welded black pipes/tubes, and electro-galvanized steel tubes/pipes.
The company manufactures steel tubes for diverse applications, such as mild steel tubes utilized in structural and general engineering tasks, ERW pipes designed for water, gas, and sewerage systems, steel tubes used for belt conveyor idlers, water wells, and lancing pipes catering to automotive and industrial needs.
JTL engages in the manufacturing and global export of a broad spectrum of hollow sections, encompassing structural hollow sections, hollow steel sections, square/rectangular hollow sections, round hollow sections, as well as mild steel black ERW square tubes, rectangular tubes, and round hollow section tubes.
Rooftop solar installations have become increasingly popular in industrial sectors as they offer a practical solution for meeting high electricity demands.
Aligned with this trend, JTL is scaling up its presence in the solar module structures sector, emphasizing the delivery of high-quality products to both domestic and international markets.
The company is dedicated to promoting the widespread use of solar energy by facilitating the efficient deployment of solar panels on rooftops, buildings, and facades.
In the fiscal year 2023, JTL Industries saw a substantial increase in revenue, surging by 14% to reach ₹1,548.4 crore as opposed to ₹1,355.32 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a Compound Annual Growth Rate (CAGR) of 88% in revenue.
Simultaneously, there was a noteworthy upturn in net profit, experiencing a 47.5% increase from ₹61.06 crore in FY2022 to ₹90.12 crore in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased 107% CAGR.
In FY23, JTL Industries maintained favourable financial metrics with a Return on Equity (ROE) of 29.80% and Return on Capital Employed (ROCE) of 34.14%
JTL is strategizing to bolster its capacity from the current 0.6 million tons per annum (MTPA) to 1 MTPA by the fiscal year 2025, with a total investment of Rs. 340 crore.
Additionally, it aims to elevate its value-added product (VAP) share from 31% in FY23 to 50% by FY25. By the end of FY25, JTL plans to augment its capacity by an additional 0.2 MTPA each at its Mangaon and Raipur facilities, reaching a total capacity of 1 MTPA.
In Q3FY24, JTL unveiled plans through its wholly owned subsidiary, JTL Tubes Limited, to establish a mega capacity augmentation project in Maharashtra. This initiative is geared towards expanding and diversifying the company’s product range.
Through this capital expenditure, JTL intends to introduce additional production lines, bolster its capability in manufacturing galvanized, pre-galvanized, and color-coated products, and enhance competitiveness via both forward and backward integration, aiming to become a premier provider of comprehensive structural steel solutions.
The management is eyeing a 30% year-on-year sales volume growth in FY24 alongside improvements in the product mix, ultimately targeting a 50% contribution from higher-margin Value Added Products (VAPs) by FY25.
With the majority of its ambitious expansions financed through internal accruals and the issuance of convertible warrants, JTL anticipates maintaining low leverage levels, indicative of sound financial prudence.
JTL demonstrates robust financial performance with an EBITDA margin (operating profit margin) of 8% and PAT (profit after tax) margins of 6%, surpassing its peers’ margins of 7% and 4%, respectively.
Furthermore, JTL consistently maintains a debt-to-equity (D/E) ratio below 1x, indicating prudent financial management. As of December 2023, its D/E ratio stood at 0.12x, notably lower than its peers’ ratio of 0.36x.
JTL Industries has demonstrated impressive growth and financial prudence. With ambitious expansion plans, increasing value-added product focus, and favorable industry tailwinds, the company seems poised for continued success.
However, challenges like raw material volatility and competition persist. As an investor or industry observer, what’s your perspective on JTL’s future? Share your thoughts on this small-cap company’s prospects.
Written by Nalin Suriya S
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JTL Industries’ remarkable 310% stock surge reflects significant growth potential. As the company unveils its expansion plans, investors are keenly observing to see if this upward momentum continues. Market dynamics and strategic execution will play a key role in shaping the future trajectory.
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