Buy JSW Steel; target of Rs 375: Sharekhan

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Sharekhan's research repor on JSW Steel

JSW Steel’s consolidated EBITDA at Rs. 4,186 crore (up 85% y-o-y) was significantly above our estimates, led by higher-than-expected EBITDA/tonne at Rs. 10,087/tonne (up 59% y-o-y) and strong sales volume at 4.2mt (up 16.6% y-o-y). Management has maintained FY2021E sales volume guidance of 15mt, which implies 5% y-o-y growth in H1FY2021E. Capacity expansion at Dolvi plant (undergoing 5mtpa capacity expansion) is on track to get commissioned by Q4FY2021. Higher steel price (revision in contractual steel price for the auto sector from October), improving revenue mix (with higher domestic sales), higher operating leverage, and volume growth from Dolvi expansion to drive 27% PAT CAGR over FY2020-FY2023E.

Outlook

We recommend Buy on JSW Steel with a PT of Rs. 375, given strong earnings growth outlook, decent RoE of 15%, and reasonable valuation of 6.6x its FY22E and 6x its FY23E EV/EBITDA, given an early recovery in the steel profitability cycle.

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