Analysts maintain lukewarm stance on JSW Steel but raise target price on stock

Consolidated revenue from operations came in flat YoY at Rs 46,962 crore during the quarter ended March while net profit was up 12 percent to Rs 3,741 crore.

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After the March quarter earnings were declared, analysts have maintained their lukewarm stance on shares of JSW Steel, yet they have hiked their target price on the steel manufacturer’s stock.

Consolidated revenue from operations came in flat YoY at Rs 46,962 crore during the quarter ended March while net profit was up 12 percent to Rs 3,741 crore. Meanwhile, higher raw material and power and fuel costs also hurt the company’s margin as it shrank to 17 percent from last year’s 19.5 percent.

At 09:27 hrs JSW Steel was quoting at Rs 697.30, up 0.61 percent.

Coking coal prices

Nomura has maintain its ‘reduce’ call on the stock but increased the target price to Rs 605 from Rs 570. It pointed out that the capex intensity will remain elevated but profitability will remain range-bound in the near term due to a decline in steel prices.

The company saw coking coal cost falling by $6 per ton QoQ in 4Q FY23. In 1Q FY23, JSW Steel expects the coking coal cost to increase by $10-15 per ton. Coking coal prices have corrected sharply in the last couple of months and according to the steel maker, its benefits will reflect in 2Q FY24.

According to Nomura, a decline in steel prices is seen offsetting the benefits of decline in coking coal cost.

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Besides, JSW Steel has earmarked a capex of around Rs 190 billion in FY24, mainly for the Vijayanagar facility, BPSL phase II expansion, new mines, and enhancement of downstream capacities.

Meanwhile, Jefferies has also maintained its ‘underperform’ rating on shares of JSW Steel but raised its target price on the stock to Rs 510 from Rs 470. It is of the view that the EPS estimates for FY24 and FY25 are still 39-42 percent below Street expectations. Further, Jefferies finds the steel manufacturer’s stock expensive at 2.3 times FY24 Price to Book.

Motilal Oswal Financial Services believes that the current valuations at 6 times its EV/EBITDA for FY24 and 2 times its Price to book for FY24 fully bakes in the positive factors such as pickup in domestic demand, a higher share of value add products, and decline in coking coal cost. The domestic brokerage firm has reiterated its ‘neutral’ rating on the stock with a revised target price of Rs 700.

JSW Steel expects the share of value add products to be in the range of 55-60 percent. The company plans capex across its facilities to enhance the volume of value add products, which will further boost margin.

Meanwhile, net debt as on March 31, 2022 was at Rs 59,345 crore, lower by Rs 10,153 crore as compared with December 31, 2022 due to healthy cash flow generation and release of working capital.

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