Brokerage firm Motilal Oswal Financial Services has downgraded the stock of JSW Steel to a 'neutral' from a 'buy' with a target price of ₹600.
The brokerage firm has cut its FY23 EBITDA estimate by 10 percent to reflect the near term headwinds in steel margin. Consequently, it has downgraded the stock with a revised target price of ₹600, based on 6 times FY23E EV/EBITDA.
Motilal Oswal updated its views on the stock after the company released its March quarter scorecard.
"The comany's consolidated net sales grew 74 percent year-on-year (YoY) and 23 percent quarter-on-quarter (QoQ) to ₹46,900 crore in Q4FY22. Adjusted PAT stood at ₹4200 crore (down 3 percent each YoY and QoQ), 19 percent below our estimate due to a sharp jump in interest and depreciation after the commissioning of the 5mt expansion at Dolvi. EBITDA at ₹9200 crore (up 9 percent YoY and flat QoQ) for the quarter was in line with our estimate of ₹8800 crore. Consolidated EBITDA/t during the quarter was ₹17,973/t (inline, down 14 percent YoY and 9 percent QoQ)," Motilal Oswal highlighted.
Motilal Oswal underscored that the company's management views the imposition of export duty on steel as temporary, similar to one in FY08, when the export duty was withdrawn within a month of the imposition on flats and in a few months in longs.
The management clarified that exports have already been custom cleared and will not attract export duty. In the rest of the cases, where there are LCs/BGs in place, the customs duty is being paid under protest, Motilal Oswal said.
Valuation and view
As per Motilal Oswal, JSW Steel is likely to deliver nearly 29 percent volume growth on a standalone basis in FY23.
The inclusion of BPSL and erstwhile Monnet Ispat (‘JISSPL’) will aid consolidated volume growth.
However, the brokerage firm expects a sharp correction in EBITDA/t and absolute EBITDA due to: a) a subdued ASP, and b) elevated costs.
Steel prices have already corrected by ₹3,500-5,000/t in the last one week across products, while iron ore prices have corrected in the ₹750-1,500/t range. Coking coal has been reduced by 11 percent in the last one-week to $494/t CFR India in anticipation of lower demand. The correction in coal prices will fructify in Q2, while steel and iron ore will reflect in Q1FY23.
Disclaimer: The views and recommendations made above are those of the broking firm and not of MintGenie.
