Buy JSW Steel; target of Rs 903: Prabhudas Lilladher

Prabhudas Lilladher is bullish on JSW Steel has recommended buy rating on the stock with a target price of Rs 903 in its research report dated October 21, 2023.

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October 23, 2023 / 16:17 IST

Buy

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Prabhudas Lilladher's research report on JSW Steel

We cut our FY24E/FY25E EBITDA estimates by 9%/8% on higher coking coal price assumption. JSW Steel (JSTL) reported robust operating performance in 2Q, driven by 10% QoQ volume growth in standalone business. Cons. EBITDA was 4% above our estimates led by strong India performance, lower coking coal prices of prior period inventory and lower mining royalties. The company is expected to deliver 16% volume CAGR over FY23-26E led by ongoing capacity additions and robust infrastructure activities in domestic market. However, recent sharp uptick in coking coal prices can put pressure on margins from 4QFY24 unless global steel players are able to take price hikes. Mgmt. believes that global steel prices have bottomed out and Chinese market is also showing some signs of demand improvement. JSTL’s rising focus on value added and specialized portfolio is expected to improve product mix and resilience for withstanding steel price volatility. We believe that JSTL with its superior execution skills will be key beneficiary of strong domestic demand scenario over next few years.

Outlook

We expect Revenue/EBITDA/PAT growth of 15%/31%/74% over FY23-26E. At CMP, stock is trading at 6.7x/5.7x EV of FY25E/FY26E EBITDA. Retain ‘Buy’ rating with revised TP of Rs903 (earlier Rs925) valuing at 7x EV of Sept 2025E EBITDA, as we roll forward.

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