Accumulate JSW Steel; target of Rs 1150: Prabhudas Lilladher

Prabhudas Lilladher's research report on JSW Steel

The Supreme Court of India (SC) on 2nd May rejected JSW Steel’s (JSTL) insolvency resolution plan for Bhushan Power & Steel (BPSL) terming it illegal on account of multiple procedural and substantive lapses found at various levels of the resolution process, ultimately directing the National Company Law Tribunal (NCLT) to initiate liquidation proceedings against BPSL. This judgement has not only created uncertainty around JSTL’s deal but also raised questions on the entire IBC process. In a verdict on appeals by operational creditors and erstwhile promoters, SC raised objections over the failure to implement the resolution plan within the prescribed timeline and the use of debt (Rs1bn in equity and Rs84.5bn in Compulsory Convertible Debentures) by JSTL, as approved by the reconstituted Board in Mar’21. We expect JSTL to file a review petition against the judgment, as delays were largely due to uncertainty caused by ED’s actions on BPSL’s assets. Moreover, in several other IBC cases, leveraging the corporate debtor was permitted.

Outlook

Despite this setback, JSTL remains the fastest growing domestic steel producer with its exceptional execution skills. We maintain ‘Accumulate’ at lower levels with a TP of Rs 1150 based on 7.5x EV of Mar’27 EBITDA.