JSW Steel PAT surged 5x in Q3; brokerage firms remain divided on the metal player

Brokerage firms remain mixed on JSW Steel Ltd after the company announced a strong set of numbers in the December 2023 quarter. The metal player surpassed the street's estimates but analysts believe that such performance is unlikely to sustain and higher costs will dent the prospects of the company.

JSW Steel reported robust growth in the consolidated net profit, which surged about 5 times to Rs 2,415 crore for the December 2023 quarter. Consolidated revenue from operations rose 7.2 per cent year-on-year (YoY) to Rs 41,940 crore during the third quarter of the ongoing fiscal.

Crude steel production, on a consolidated basis rose over 10 per cent YoY to 6.87 million tonnes, while sales volume increased 5 per cent to 6 million tonnes. The company is on track to meet the guided crude steel production of 26.34 million tonnes and sales of 25 million tonne, it said.

Ebitda came in at Rs 7,180 crore for the quarter, declining 9 per cent sequentially amid lower sales volumes, higher iron ore, and coking coal costs. EBITDA margin for the quarter stood at 17.1 per cent. Steel ralse rose 7 per cent YoY to 6MT and domestic sales stood at 5.27 MT, up 2 per cent YoY.

JSW Steel's consolidated EBITDA came in ahead of estimates, led by higher earnings at subsidiaries, whereas standalone operating earnings were in line. Higher raw material prices led to a 13 per cent Qoq decline in standalone EBITDA/ton to Rs 11,113, said Kotak Institutional Equities.

"We expect steel spreads to remain under pressure in the near term; however, it would be partly offset by operating leverage in 4QFY24. Expansion projects are on track and provide strong growth visibility in FY2025-26E, placing JSW ahead of its peers. We raise fair value to Rs 860 on rollover," it added while maintaining a 'reduce' rating on the stock.

Shares of JSW Steel were trading range-bound on Monday. The stock opened with mild gains but dropped slightly to trade in red at Rs 813.35 during the session, commanding a total market capitalization of slightly less than Rs 2 lakh crore. The scrip had settled at Rs 816.45 on Thursday.

JSW Steel posted better-than-expected Q3 consolidated EBITDA of Rs 7,180 crore, down 9 per cent QoQ. Beat was due to better-than-expected profitability at Indian and overseas subsidiaries, said Nuvama Institutional Equities.

"We expect Q4FY24 EBITDA per ton to fall to Rs 9,300 amid higher raw material cost offset by higher volume and flat steel prices," it said. We cut FY24E EBITDA by 5 per cent to factor in lower Q4 profits. Maintain ‘hold’ with target price of Rs 875 rolling to FY26 and valuing at 7.5 times FY26E EV/EBITDA.

Net debt stood at Rs 79,200 crore Rs 10,000 crore QoQ primarily on account of increased working capital requirements. Key takeaways from the call are coking coal cost is expected to increase by $20-25 per ton in 4QFY24; consolidated capex for FY24 to be Rs 18,000 crore and realisations during 4Q to slightly track revival in exports, said JM Financial.

'JSW continues to aggressively add capacity across facilities Vijaynagar expansion to be completed by FY24 end, BPSL Phase-II expansion (from 3.5mtpa to 5mtpa) is expected to be completed by FY24. Strong growth pipeline and increased focus on cost efficiency augurs well for the company," it added with a 'buy' tag and a target price of Rs 830.

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