ICICI Direct recommended Hold rating on JSW Steel with a target price of Rs 235 in its research report dated October 24, 2019.
ICICI Direct's research report on JSW Steel
JSW Steel reported a subdued set of operational numbers in Q2FY20 on the back of lower-than-expected sales realisations. Sales realisations were down 16% YoY, 9.5% QoQ. PAT was aided by deferred tax credit. On a standalone basis, JSW Steel reported sales volume of 3.60 MT (our estimate: 3.65 MT). Subsequently, consolidated operating topline (excluding the government grant income) was at Rs 17106 crore (our estimate: Rs 18244.7 crore). In Q2FY20, JSW Steel received income to the tune of Rs 466 crore with respect to government grant income with respect to VAT/GST incentive relating to earlier years. Standalone adjusted EBITDA/tonne was at Rs 6472/tonne (our estimate of Rs 7250/tonne). Consolidated adjusted EBITDA was at Rs 2265 crore (our estimate of Rs 2694.6 crore). On a consolidated basis, JSW Steel reported deferred tax write-back of Rs 1976 crore. This aided consolidated PAT, which came in at Rs 2536 crore.
On the back of muted Q2FY20, we downward revise our FY20E EBITDA/tonne estimate to Rs 8000/tonne (from Rs 8500/tonne earlier) and Rs 8500/tonne for FY21E (from Rs 8750/tonne earlier). In the current challenging scenario, the declining trend seen in coking coal prices would act as a silver lining. This would aid steel spreads (EBITDA/tonne) to inch higher from Q2FY20 levels. We value the stock on an SoTP basis thereby arriving at a target price of Rs 235. We maintain our HOLD recommendation.
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