Brokerages Raise Target Price, Earnings Estimates For JSW Steel; Stock Drops
A bird flies above signage for the JSW Steel Ltd. manufacturing facility in Dolvi, Maharashtra, India. (Photographer: Dhiraj Singh/Bloomberg)

Brokerages Raise Target Price, Earnings Estimates For JSW Steel; Stock Drops

Analysts raised their target price and earnings estimates on JSW Steel Ltd. after the fourth-quarter results.

The company’s profit jumped to the highest in at least 12 quarters amid rising domestic demand, coupled with exports and improved steel prices. That’s despite operating losses at overseas subsidiaries. Its revenue and operating profit, too, rose, and margin expanded in the January-March period. JSW Steel also reported a 3.8% sequential rise in shipments during the period.

The company now expects its FY22 production to be 32% higher than the previous fiscal, while sales to be 25% more than FY21.

Seshagiri Rao, managing director at JSW Steel, told BloombergQuint that demand is expected to remain high in India in the ongoing financial year even as international steel prices witnessed some decline due to China’s stringent emission polices. Besides, both Ohio and U.S. plate and pipe mill business have already turned Ebitda positive from March and are expected to contribute well into the financials of the company, he said. Rao also expects exports to be in the range of 10-25% for the ongoing fiscal compared to 28% in FY21.

JSW Steel has approved new projects entailing a capex of Rs 25,115 crore over FY22-FY24. This includes expanding capacity by 5 million tonnes per annum at its plant in Vijayanagar at a capex of Rs 15,000 crore; enhancing mining capabilities and efficiencies at a capex of Rs 3,450 crore and setting up a 0.12-MTPA colour-coated downstream facility entailing capex of Rs 100 crore.

Shares of the steelmaker fell as much as 3.7% to Rs 671.9 apiece, but are trading above the Bloomberg consensus price target of Rs 675.32 apiece. The decline, however, is in line with the pressure seen in all metal stocks. Of the 32 analysts tracking JSW Steel, 20 suggest a ‘buy’.

Also read: JSW Steel Q4 Results: Higher Prices, Exports Drive Profit To 12-Quarter High

Here’s what brokerages have to say about JSW Steel’s fourth-quarter results:

Nomura

  • Downgrades to ‘neutral’ from ‘buy’ rating; but raises target price to Rs 697 from Rs 530 apiece.
  • Strong steel spreads drive Q4 results.
  • Prices factor in peak spreads with rising risk to commodity prices.
  • Values JSW Steel at 2.09x (versus 2.11x previously) FY23 estimated book value to arrive at higher target price.
  • Raises FY22/23 Ebitda estimates by 33%/34% factoring strong steel spreads, cost saving initiatives.
  • Key downside risks are weakening of steel spreads due to rise in raw materials.

JPMorgan

  • Maintains ‘overweight’ rating with target price at Rs 510 apiece.
  • Large aggressive capex plan announced.
  • FY22 volume guidance slightly lower than estimate.
  • Debt inches up sequentially.
  • Expects iron ore cost to increase given higher benchmark iron ore prices.

Morgan Stanley

  • Maintains ‘attractive’; hikes target price to Rs 920 from Rs 590 apiece.
  • Company is well positioned to deliver strongest volume growth over next 2-3 years.
  • Despite new capex plans, net debt to Ebitda should be well under 1.5x.
  • Raises FY22/23 Ebidta estimates by 17%/25%.

Jefferies

  • Retains ‘buy’; raises target price to Rs 820 from Rs 600 apiece.
  • 4Q Ebitda rose 42% QoQ, 13% above Jefferies’ estimates, led by better-than expected realisations.
  • Asian steel prices to remain strong despite some recent correction.
  • Expects JSW Steel’s margins to rise further in June quarter but factor in normalisation in the remainder of FY22.
  • Raises FY22-23 EPS estimates by 44-68%.
  • Prefers Tata Steel over JSW Steel.
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