Jindal Steel and Power Ltd (JSPL) is navigating a critical transition, where significant new capacity is coming online just as near-term profitability faces a cyclical squeeze. The company's stock, up a modest 6% over the past year, has underperformed the broader markets, reflecting this challenging phase. The immediate future hinges on a successful ramp-up of volumes from its expanded facilities to unlock a transformed earnings profile by FY28.
Near-Term Headwinds: Prices and Profitability Pressures
The steel sector is currently grappling with a domestic oversupply situation and softer demand, which has put pressure on realizations. This comes at a time when key input costs, particularly for coking coal and iron ore, have moved higher. According to data from Antique Stock Broking, domestic steel prices in the third quarter of FY26 (Q3FY26) are down 2-5% compared to the previous quarter.
The impact on Jindal Steel's margins is pronounced. The company's Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) per tonne fell to ₹10,027 in Q2FY26, marking a 12.7% year-on-year and a steep 36% sequential decline. Analysts at Nuvama Research anticipate a further drop to around ₹8,200 per tonne in Q3FY26, implying a sequential fall of nearly ₹1,800 per tonne.
Nuvama, in a December visit note, suggested that steel spreads are likely to bottom out in Q3FY26, with a recovery expected only from the fourth quarter (Q4FY26) as prices stabilize. This anticipated trough is a key focus for investors watching the stock.
The Capacity Expansion Blueprint
Amidst the earnings pressure, Jindal Steel's long-term growth story is being built on a substantial capacity expansion. Since September 2025, the company has commissioned 3 million tonnes per annum (MTPA) of new crude steel capacity. This has taken its total installed capacity to 12.6 MTPA.
Another 3 MTPA is scheduled to be operational by March 2026, which will elevate the company's total capacity to 15.6 MTPA. Currently, the utilization rates at the new facilities are low, around 40-45%, which is typical for the early stages of a ramp-up and not necessarily indicative of demand constraints.
The management has reiterated its sales volume guidance of 8.5 to 9 million tonnes for FY26. With first-half (H1FY26) volumes at approximately 3.8 million tonnes, achieving this target requires a sharp acceleration in sales during the second half of the fiscal year. The company remains confident of hitting at least the lower end of this range, supported by stabilizing new operations and a seasonally stronger March quarter.
FY28 and Beyond: A Volume-Led Transformation
The true inflection point for Jindal Steel lies beyond FY26. Having struggled with capacity constraints in recent years, the company is now poised to enter a sustained volume-led growth phase. Nuvama Research projects steel sales volumes to grow at a 17% compound annual growth rate (CAGR) over FY25-28, reaching about 12.7 million tonnes by FY28.
In this new phase, earnings growth is expected to be driven primarily by higher volumes rather than a sharp rebound in steel prices. This will be aided by a structural reset in the company's cost profile. Several key initiatives are nearing completion:
- Increased usage of captive coal.
- Commissioning of a slurry pipeline to reduce logistics costs.
- Addition of incremental captive power capacity.
These measures are designed to lower the marginal cost of incremental production, improving operating leverage even in a stable pricing environment. Furthermore, the product mix is turning more favorable, with value-added steel accounting for over 73% of the sales mix in Q2FY26, compared to 58% in Q2FY25, providing some insulation from commodity price volatility.
While heavy capital expenditure has weighed on free cash flow in FY26, spending is expected to taper as projects are completed. As volumes rise, the company's financial leverage is projected to improve significantly. The net debt-to-Ebitda ratio is expected to fall well below 1x over the next two years from the current level of 1.5x.
If the volume ramp-up proceeds as planned and the cost-reset initiatives deliver as expected, Jindal Steel's earnings profile by FY28 could look materially different, marking a successful transition past its capital-intensive phase.
