Sharekhan’s research repor on JSW Steel
Valuation of 6.4x its FY2023E EV/EBITDA is reasonable given early recovery in the steel profitability cycle. Domestic steel price continues to witness upward movement with price hike of ~Rs. 3,000/tonne in November. Further price hikes are likely in December as domestic price is still at a discount to China steel prices and demand-supply situation remains tight. We expect steel margin to increase by 30%-40% or Rs. 3,000-4,000/tonne q-o-q in Q3FY2021E, backed by price hike. Thus, we increase our FY2021-FY2023 earnings estimate for JSW Steel. Dolvi capacity expansion would increase JSW Steel’s domestic capacity to 23 mtpa from 18 mtpa and drive volume growth over FY2022E-FY2023E.
Retain Buy on JSW Steel with a revised PT of Rs. 432 as strong earnings momentum is likely to continue in H2FY2021E, led by steel price hike and weak coking coal price, offsetting higher iron ore price.