The integrated steel producer, which clocked its highest ever quarterly revenue, operating Ebitda and profit after tax for the June quarter, is seen as the best play on volumes growth in the steel sector.
Analysts said JSW Steel is aggressively ploughing back cash flows for the expansion of business, which is unlike peers that are focusing more on de-leveraging. This, analysts said, indicates the management’s focus to grow its market share and the comfort it is finding in managing its cash flows and leverage.
If one goes by analyst projections, double-digit return for the stock looks likely. This is despite the stock having rallies 91 per cent year to date and a whopping 400 per cent, or 5 times, since March 2020 lows.
For the June quarter, JSW Steel reported a record profit of Rs 5,900 crore against a loss of Rs 554 crore in the year-ago quarter. Revenues more than doubled to Rs 28, 902 crore from Rs 11,782 crore YoY. Ebitda was highest at Rs 10,274 crore, with an Ebitda margin of 35.5 per cent.
Motilal Oswal Securities said it likes JSW Steel’s strong project pipeline and cost reduction initiatives, which should aid margins going ahead. This brokerage forecast an above-industry volume CAGR of 17 per cent for JSW Steel over FY21–23, driven by the Dolvi expansion.
Despite the high capex, it expects the net debt of the company to decline 17 per cent to Rs 54,200 crore over FY2021-23.
“The 5 mtpa Dolvi expansion will commence operations by September, providing healthy revenue visibility,” said
, which believes that the healthy share of value-added and special products (VASP) augurs well for the integrated steel player. In June quarter, VASP accounted for 61 per cent for sales, its highest ever.
Other than Dolvi, the company is increasing its Vijayanagar steel capacity by 5 mtpa to 12 mtpa by FY24 with a capex of Rs 15,000 crore. In total, the company has lined up capex plan to the tune of Rs 47,500 crore over next three years.
Joint MD and group CFO at JSW Steel Seshagiri Rao said his company will be able to achieve the volume guidance of 18.5 million tonne production that it made at the beginning of financial year.
“As far as margins are concerned, there will be a pressure on account of the increase in coking coal prices and also iron ore prices,” he said.
Rao said 42 per cent of the iron ore his company consumed (9.8 million tonnes) in the June quarter was from captive sources. “We wanted to increase to 50 per cent plus,” he told ETNOW. Rao said the correction in prices since June is seasonal.
“China has produced 504 million tonnes in first six months, which is 59 million tonnes more than the corresponding year of last year. This is even as it said they want to limit the production. On the other hand, exports in the first six months from China were 37 million tonnes against 28 million tonnes in last year. There is always a gap between what they say and what is happening on the ground. That is what we have to watch.” he said.
“Maybe one indication was that in the month of June, the production was down to 93.5 million tonnes compared with 99 million tonnes in May,” Rao said.
IDBI Capital said domestic steel companies may export a higher proportion of steel if the domestic demand weakens in the near future. It expects steel prices to remain firm in FY22 in hopes China will curb steel capacities in the second half of the ongoing calendar.
JSW Steel is among one of the most cost-efficient steel producers globally. “Strong growth pipeline and cost efficiency augur well for the earnings trajectory of the company,”
said while suggesting a target of Rs 835 on the stock. Motilal sees the stock at Rs 840.
IDBI Capital sees it at Rs 855. “Over the coming five years, JSW Steel’s volume growth is likely to remain strong alongside strong return ratios as it is undertaking low-cost brownfield expansions,” the brokerage said.
It valued the stock at 7 times FY23-25 EV/Ebitda as it feels that JSW’s expansion plans provide strong volume growth visibility over FY21-FY25. IDBI Capital now finds the stock Rs 853 worthy.
The scrip has been rising for three days now. On Thursday, it was quoting at Rs 746.85, up 3.5 per cent. At the prevailing price, the target suggests 12 per cent upside.
