ICICI Direct is bullish on JSW Steel has recommended buy rating on the stock with a target price of Rs 315 in its research report dated February 08, 2019.
ICICI Direct's research report on JSW Steel
For Q3FY19, JSW Steel reported a healthy EBITDA/tonne driven by better-than-expected realisations both QoQ as well as YoY • Sales volume for the quarter was at 3.68 million tonnes (MT), down 7.3% YoY, lower than our estimate of 4.0 MT. Consolidated topline was at Rs 20318 crore (up 13.8% YoY, down 5.7% QoQ) lower than our estimate of Rs 21087.9 crore. On the back of lower-than-expected sales volume, consolidated topline lower than our estimate • Standalone operations reported a steady EBITDA/tonne of Rs 12060/tonne (vs. our estimate: Rs 10000/tonne, Q3FY18: Rs 9000/tonne, Q2FY19: Rs 12126/tonne) • Consolidated EBITDA was at Rs 4501 crore (up 16.9% YoY, down 8.3% QoQ vs. our estimate: Rs 4131.2 crore). Corresponding consolidated EBITDA margin came in at 22.2% vs. our estimate: 19.6% (21.6% in Q3FY18 and 22.8% in Q2FY19) • On a consolidated basis, the company reported other income of Rs 37 crore, depreciation of Rs 1078 crore and finance cost of Rs 1021 crore. Ensuing PAT was at Rs 1603 crore (our estimate of Rs 1486 crore).
JSW Steel’s Q3FY19 performance was marked by healthy EBITDA/tonne, but sales volumes disappointed. Going forward, blended realisation is likely to decline on the back of recent softness in steel prices. However, the downtick in prices of iron ore is likely to provide some relief. We continue to value the stock on an SOTP basis assigning 6x FY20E EV/EBITDA to the core and factoring CWIP till FY20E at 0.7x book and arrive at a target price of Rs 315. We maintain our BUY rating on the stock.
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