Sharekhan's research report on JSW Steel
We have increased our FY2021/FY2022/FY2023 earnings estimates by 11%/33%/21% to factor higher steel price (sustained EBITDA margin of Rs. 13,500-14,000/tonne) and volume growth (expect 7% CAGR over FY2021E-FY2023E, which is conservative in our view). Volume growth is likely to be driven by Dolvi expansion from 5mtpa to 10mtpa (expected to be completed by Q1FY2022); higher profitability could result in early turnaround of overseas subsidiaries in US and Italy. Strong earnings growth (expect PAT CAGR of 15% over FY2021E-FY2023E) to improve cash flows over the next two years and drive balance sheet deleveraging; and we expect JSW Steel’s net debt/EBITDA to decline to 2.2x by FY2023 (versus 3.5x in 9MFY2021).
Outlook
We retain Buy on JSW Steel with a revised PT of Rs. 500 as the high steel margin cycle is likely to sustain over FY2022-FY2023, led by higher international price (given supply constraints in China) and tight domestic supply amid strong demand. Valuation of 6.5x its FY2023E EV/EBITDA is reasonable and below historical average of 7x.
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