JSW Steel is adding capacity at the right time to capture the robust growth journey, according to Motilal Oswal Financial Services. The steelmaker is undertaking capital expenditure (capex) programs which will enhance its Indian steel capacity to 37mt from 27mt by FY25, the brokerage firm highlighted.
The capacity expansion comes on the back of strong outlook for steel demand. The government’s strong push on infrastructure, housing, and construction, along with improved demand for auto and renewables is seen driving domestic demand for steel.
“JSTL (JSW Steel) is expected to gain market share from the rising domestic demand,” Motilal Oswal said. Another positive that the brokerage firm sees is JSW Steel being a preferred steel supplier to the automobile sector.
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India, which is the third largest automobile market in the world, is on its way to becoming the global auto hub by FY28, and with a strong presence across auto value chain, JSW Steel has become one of the preferred and leading suppliers in the auto industry, the brokerage firm explained.
Besides, the brokerage firm expects pickup in domestic demand and higher exports, post removal of export duty, to support volumes. “With the recent price increase, we should see margins improving in the near term,” it added.
Overall, metal stocks, which have been on a declining trend for the past few months, are seeing a rebound on easing coking coal prices, lower Chinese production and better domestic prospects.
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Even as the steelmaker is well-placed, the stock trades at 5.8 times FY24 Enterprise Value to Earnings Before Interest, Taxes, Depreciation, And Amortisation Ratio (EV/EBITDA) and appears to be fully discounting the benefits, Motilal Oswal said.
This has prompted the brokerage firm to maintain its ‘neutral’ rating on the steel manufacturer’s stock with a target price of Rs 710. At pm, shares of the company were trading percent higher at Rs on the BSE.
Even as the stock has given negative returns YTD, it has risen over 200 percent in the past three years.