Reduce JSW Steel; target of Rs 738: Sharekhan

Sharekhan's research report on JSW Steel

Q3 consolidated operating profit of Rs. 7,180 crore (down 9% q-o-q) was above our estimate led by robust performance of overseas subsidiaries, which offsets marginal miss in standalone EBITDA margin. Standalone EBITDA margin of Rs. 11,113/tonne (down 13% q-o-q) was 2% below our estimate due to a rise in coking coal and iron ore costs. Overseas subsidiaries posted 42% q-o-q rise in EBITDA led by lower losses at US Ohio and sharp EBITDA jump of 89% q-o-q for Italy operations supported by higher realisations. High coking coal and iron ore price is a concern for steel margin.

Outlook

The company maintained FY24 consolidated steel sales volume guidance of 25 mt and plans to expand steel production capacity to 37 mt/50 mt by FY25E/FY31E. We maintain our Reduce rating on JSW Steel with a revised PT of Rs. 738, given rich valuation of 7.5x/7x FY25E/FY26E EV/EBITDA and elevated debt.

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