JSW Steel Q1 Review: Analysts Retain Bullish Stance Despite Debt Concern
Most analysts retained their bullish investment recommendations on JSW Steel Ltd. even as the steelmaker reported its first loss in more than six years and debt spiked amid the disruptions caused by the coronavirus pandemic.
JSW Steel reported a net loss of Rs 561 crore in the April-June period—the first since the second quarter of 2013-14—against a net profit of Rs 1,028 crore a year ago. Its revenue declined 41% to Rs 11,782 crore.
The company’s net debt-to-Ebitda stood at 5.7 times as of June 2020 compared with 4.5 times at the end of March and 2.72 times a year ago.
But that didn’t deter analysts from maintaining their bullish rating on the stock. That may be because of the company’s improving operational metrics and expansion plans.
Of the 31 analysts tracking the stock, 16 have a ‘Buy’ rating, eight suggest a ‘Hold’ and seven recommend a ‘Sell’. The average of Bloomberg consensus price targets implies an upside of 3.1%
Shares of JSW Steel dropped as much as 0.83% in early trade on Monday compared with largerly unchanged performance of the benchmark Nifty 50 Index.
Here’s what brokerages have to say about JSW Steel’s first-quarter results:
Maintains ‘Buy’ rating; target price unchanged at Rs 250 apiece
Decline in volume and realisation in a challenging quarter
Operational metrics gradually improving
Reports net loss for the quarter but maintains positive cash flow from operations
Decreases FY21 earnings estimates by 12%
EPS downgraded due to drag from overseas business, sales volume adjustments for FY21
Retains ‘Hold’ rating; with a target price of Rs 193 a share
Better-than-expected operational performance on cost measures and lower overseas losses
Expects JSW Steel’s iron ore cost curve to inch down gradually as auctioned mine output increases
Balance sheet overhang persists on back of Insolvency and Bankruptcy Code assets
Reiterates ‘Reduce’ with a target price of Rs 150 apiece
Few near-term positives emerge; but already priced in
Outlook not encouraging on expectation of a sharp contraction in domestic demand
Higher-than-expected steel prices and demand are upside risks to reduce rating
Balance sheet continues to deteriorate; valuations look stretched
Stock looks expensive at 7.4 times its estimated FY22 EV/Ebitda and 20 times price-to-earnings
Motilal Oswal Securities
Maintains ‘Buy’ rating; target price at Rs 242 apiece
Lower volumes and realisations led to Ebitda decline
Expected price hikes to improve margins
Weak domestic demand impacts profitability
Company expected to deliver above-industry volume growth in FY22, driven by expansion
Any turnaround in its loss-making overseas operations could provide a further upside
Maintains ‘Reduce’; target price at Rs 166 apiece
Performance surpasses expectation
Escalating leverage and potential overhang of Bhushan Power & Steel Ltd.’s acquisition pose risks
Valuation at 7.7 times its estimated FY22 Ebitda is at the top-end of the past 10 years’ historic trading range