Jindal Steel is entering a decisive phase of growth as its multi-year capacity expansion begins to translate into higher production and operating leverage. With two major facilities already commissioned in H1FY26 and another due by the end of FY26, the company is positioned to scale output sharply over the next two years. While near-term steel prices remain subdued, the expansion-led volume growth and cost efficiencies underpin the investment case.
What has changed on the capacity front?
The company has commissioned a 4.6-mtpa blast furnace at Angul in September 2025, which has already produced its first batch of steel. At the same complex, a 3-mtpa basic oxygen furnace has also been commissioned, with a 3-mtpa steel melting shop expected to come on stream by the end of FY26.
Once fully operational, Jindal Steel’s crude steel capacity will rise from 9.6 mtpa in FY23 to 15.6 mtpa by FY26 — a nearly 60 per cent expansion. This marks the most significant scale-up in the company’s history and lays the foundation for sustained volume-led growth.
Why output growth will be gradual, not immediate
Despite the sharp jump in nameplate capacity, management has guided conservatively on utilisation. Over the last twelve months, steel production and sales stood at 8.2 mtpa and 7.8 mtpa, respectively. For FY26, guidance is 9–10 mtpa of production and 8.5–9 mtpa of sales, implying a 10–15 per cent increase.
This cautious ramp-up reflects the realities of commissioning large steel assets, where stabilisation, yield optimisation, and downstream integration take time. The real operating leverage is expected to emerge over the next two years as utilisation rises closer to optimal levels.
Steel prices remain a headwind
The volume outlook is strong, but the pricing environment remains challenging. Global steel prices are under pressure due to excess supply, particularly from China, where exports are often priced near cost. While India and several other countries have imposed trade barriers on Chinese and Vietnamese imports, these measures have only stabilised prices rather than triggered a recovery.
In this context, earnings growth will depend less on price cycles and more on internal levers such as scale, product mix, and cost control.
Value-added products as a pricing cushion
One key differentiator for Jindal Steel is its emphasis on value-added products. In Q2FY26, over 70 per cent of its sales came from value-added steel — among the highest in the industry. The newly commissioned facilities are expected to support this mix, particularly in higher-grade steel for the automobile and engineering sectors.
While approvals for auto-grade steel take time, successful qualification can provide relatively stable pricing and better margins, reducing dependence on volatile commodity steel prices.
Cost efficiencies and margin levers
The company has secured coal linkages of 13–15 mtpa, meeting about 95 per cent of its thermal coal requirements in-house during Q2FY26. This offers cost savings of 3–5 per cent compared to auctioned or market-linked coal, while also ensuring supply security.
In addition, two major infrastructure projects are nearing completion:
- A 200-km slurry pipeline (around 90 per cent complete), which will reduce transportation costs.
- A 525-MW captive thermal power plant at Angul, which will lower power costs.
Combined with higher capacity utilisation, these initiatives should drive operating leverage and margin improvement over the next phase of growth.
Debt, deleveraging, and financial flexibility
Expansion has come with higher leverage. As of September 2025, net debt stood at ₹14,156 crore, with a net debt-to-EBITDA ratio of 1.48 times. However, as new plants stabilise and cash flows improve, the company is expected to prioritise deleveraging over the next year, leading to lower interest costs and improved financial resilience.
Valuations and investment view
In FY25, revenue stood at ₹49,765 crore, reflecting a modest decline over FY23–25 due to weak steel prices and stagnant output. However, lower coking coal costs and rising in-house coal usage helped contain raw material costs, keeping EBITDA largely stable.
Looking ahead, earnings growth is expected to be driven by higher steel output and efficiency gains rather than price recovery. At around 7.7 times one-year forward EV/EBITDA — a roughly 30 per cent premium to its five-year average — valuations are not cheap. Even so, given the scale-up visibility and operating leverage ahead, a staggered accumulation strategy appears justified.
What to note for Prelims?
- Steel capacity expansion drives operating leverage through higher utilisation.
- Value-added steel products offer better pricing stability than commodity steel.
- Backward integration into coal and power reduces cost volatility.
What to note for Mains?
- Analyse the role of capacity expansion in cyclical industries like steel.
- Discuss how operating and financial leverage affect corporate profitability.
- Examine India’s steel sector challenges amid global oversupply and trade barriers.
