Record Volume, Margin Crunch—Capex Bet Intact

On the headline, Jindal Steel delivered a stellar quarter: revenue up 43%, EBITDA up 34%, record volume of 2.38M tons. But profit grew only 21% year-on-year and fell 8.7% quarter-on-quarter. That gap—the margin compression—is the story. Coking coal costs jumped from $12–15/ton in Q2 to an expected $20–25/ton in Q3. Freight spiked. The company beat guidance on volume and leverage, but raw material inflation ate the operating leverage.

Operating margin stands at 15.4%—solid for the sector, but under pressure. Net margin of 4.6% reflects the tax impact of profit growth. The real concern is the trend: EBITDA per ton of ₹10,529 is up 5% YoY, implying flat operational leverage when revenue per ton should be climbing. The QoQ PAT decline despite 7.7% revenue growth is the red flag. Management attributed it to raw material and freight cost inflation; the data confirms it. Coking coal at $12–15/ton in Q2 was a gift (prior FY27 guidance was $20–25/ton). That gift expires in Q3.

Three major shifts from prior guidance:

The market is punishing the stock despite strong operational execution. At ₹1,060, the stock is 18.85% below its all-time high and trading below both its 50-day and 200-day moving averages (₹1,105 and ₹1,138 respectively), signaling a bearish trend. RSI at 48.5 is neutral—not oversold, but not showing strength. Volume is normal; no capitulation or panic.

Ownership tells the story: FII holdings have slipped to 8.84% from 9.76% a year ago—a 92-basis-point decline. Foreign institutions are cautiously trimming. Domestic institutions (DII) are stable at 19.52%, up slightly from 18.74% a year ago, but not aggressively buying. Promoters remain locked at 62.69%, unchanged. The narrative: international investors are cautious on margin compression and capex execution risk; domestic pockets see value in the long-term story but aren't doubling down.

The disconnect is real: the company beat guidance on volume and leverage, the slurry pipeline is live, and DRI/CGP projects are on track for June 2027. But the market is pricing in Q3 margin pain (coking coal $20–25/ton) and questioning whether ₹47K Cr capex can be funded and executed within a 1.51x leverage envelope. Until margins stabilize, the stock will likely trade at a discount to intrinsic value.

Not volume (management is executing), not leverage (1.51x is credible). Track EBITDA per ton. If ₹10,529/ton (Q2 actual) holds or grows in Q3-Q4 despite coking coal inflation, the capex thesis is intact and margins will expand post-DRI. If it falls to ₹9,500–9,800/ton (signaling margin compression + failed offsets), the bear case accelerates and the market will cut FY28 expectations. This single metric reconciles the coal cost headwind against the slurry/product mix/DRI upside.