JSW Steel Expects To Meet Sales Target For FY21 Amid Mixed Reaction To Its Q2 Results
Small steel blooms are stacked together at a steel mill. (Photographer: Chris Ratcliffe/Bloomberg)

JSW Steel Expects To Meet Sales Target For FY21 Amid Mixed Reaction To Its Q2 Results

JSW Steel Ltd. expects to report higher realisations in the future as domestic demand improves, mainly aided by a recovery in auto sales.

Despite this, the company maintained its annual guidance of 15 million tonnes of saleable steel in the rest of the ongoing financial year, a seasonally strong period, according to BloombergQuint’s conversation with Joint Managing Director Seshagiri Rao. The steelmaker sold 6.9 million tonnes of the alloy in the pandemic-marred first-half.

JSW Steel reported a 10% year-on-year rise in its consolidated revenue at Rs 19,264 crore in the quarter ended September. While its net profit fell 37% to Rs 1,595 crore, operating income jumped 62% at Rs 4,414 crore. The company’s Ebitda margin, too, expanded to 22.9% from 15.5% a year ago.

While the beat in estimates prompted most analysts to raise their target price for the company, a few downgraded their rating recommendations due to lack of valuations support and limited upside of spreads amid rising iron ore costs.

Of the 31 analysts tracking the stock, 11 each have a ‘buy’ and ‘hold’ rating and the rest suggests a ‘sell’. The average of 12-month Bloomberg consensus target price implies a downside of 7.3%.

Shares of JSW Steel fell as much as 4.75% on Monday to emerge as the top laggard on the Nifty 50 index.

Highlights from BloombergQuint’s conversation with Rao…

  • Auto sales improved quarter-on-quarter for three months ended September.

  • Sees higher prices for auto contracts in second half.

  • Utilisation is back at pre-pandemic levels.

  • Exports of iron ore almost doubled year-on-year in the first half of FY21.

  • Coking coal prices would continue to move in the range of $105-140 a tonne.

  • JSW Steel continues to aim for debt/Ebitda at 3.75 times for FY21.

  • Spent capex of Rs 4,400 crore for first half against target of Rs 9,000 crore for FY21

  • Steel prices might go higher tracking higher international prices due to strong demand in China.

Watch the full interview with Rao here...

Here’s what brokerages have to say…

Credit Suisse

  • Downgrades to ‘neutral’ from ‘outperform’; raises target price to Rs 300 from Rs 200 apiece.

  • JSW Steel has maintained its guidance of 15 million tonnes sales in FY21.

  • Share of exports fell to 28% in Q2 from 57% in Q1.

  • FY21 capex guidance maintained at Rs 9,200 crore.

  • Q2 FY21: Good quarter; downgrading as valuation non-supportive.

Nomura

  • Downgrades to ‘neutral’ from ‘buy’ but hikes target price to Rs 321 from Rs 245 apiece.

  • FY21 sales guidance of 15 million tonnes can be exceeded.

  • Expects steel realisations to improve further in second half of FY21.

  • Spreads may remain constrained by iron ore production constraints.

  • Raises FY21 Ebitda forecast by 8%.

  • Positive outlook appears largely factored into current price.

  • Any further rise in steel spreads is an upside risk.

  • Weak domestic liquidity is a downside risk.

Investec

  • Retains ‘hold’, increases target price to Rs 347 from Rs 343 apiece.

  • Operational beat on account of price growth and cost control measures taking effect.

  • Expects moderate spread expansion even with steep hikes in Q3.

  • Despite Rs 3,900 crore of capex, reported debt reduction over first half.

Motilal Oswal

  • Reiterates ‘buy’ with target price at Rs 372 a share.

  • Impressive performance on all fronts

  • Expects margins to remain strong on the back of higher steel prices.

  • Higher margins should also keep debt in check.

  • Strong project pipeline and cost reduction initiatives.

  • Expects the company to deliver above-industry volume growth in FY22.

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