JSW Steel Q3 Results: Most Analysts Maintain Rating, But... 

Most analysts cut target price for JSW Steel Ltd. as lower realisations and poor performance of overseas subsidiaries dragged the consolidated earnings of the Indian steelmaker in the quarter ended December.

Its consolidated net profit plunged 88 percent year-on-year to Rs 187 crore in the October-December period, according to an exchange filing.

Also, the company’s adjusted earnings before interest, tax, depreciation and amortisation more than halved over last year to Rs 2,201 crore—the lowest since the fourth quarter of 2016. Its adjusted Ebitda includes a consideration of Rs 250 crore received from a vendor as “fees for assignment of a procurement contract pertaining to the supply of industrial gases”, the filing said.

Still, JSW Steel maintained its production and sales guidance for the ongoing financial year at 16.5 and 15.5 million tonnes, respectively, and expects to raise it in the next fiscal, prompting analysts to maintain their bullish outlook on the Indian steelmaker. That’s despite a delay in commissioning of its key projects. The company’s new 5-million-tonne per annum capacity plant at Dolvi is now expected to commission during the first half of the fiscal ended March 2021 against an earlier timeline of March 2020.

Here’s what brokerages have to say about JSW Steel’s third-quarter performance…

UBS

• Maintains ‘Buy’ rating but cuts target price to Rs 315 from Rs 271 a share.
• Improvement in sales volume indicates potential domestic demand recovery.
• Ebitda/tonne fell to a multi-year low despite lower raw material costs.
• FY21 valuation (EV/Ebitda) of 6.5 times is in line with its five-year average.

JPMorgan

• Maintains ‘Overweight’ rating but would wait for a better entry point.
• Cuts target price to Rs 271 from Rs 295 apiece.
• The benefit of the steel price hike to come in the quarter ended March 2020.
• Overseas subsidiaries remain a drag; China's market and prices there remain a cause of concern.

Phillip Capital

• Maintains ‘Sell’ rating and raises the target price to Rs 233 from Rs 198 apiece.
• Expects domestic spreads to improve in the fourth quarter aided by the steel price hike.
• JSW Steel’s benefits would be partially nullified by a steep increase in domestic iron ore prices.
• Cautious stance on account of delays in a turnaround of subsidiaries and potential debt increment.
• Outlook improving but valuations remain expensive.

Edelweiss Securities

• Maintains ‘Hold’ and cuts target price to Rs 295 from Rs 300 apiece.
• Higher auto shipments (up 10 percent quarter-on-quarter) at Rs 6,000 a tonne lower realisation sequentially.
• Cuts FY21 Ebitda estimates by 3 percent factoring delay in commissioning of the brownfield facility at Dolvi.
• Cost efficiencies and operating leverage benefits arrested Ebitda decline.
• Expects improvement in the fourth-quarter spreads led by higher realisation.
• Expects iron ore cost not to increase materially from current levels.