JSW Steel shares: Is BPSL setback priced in? Worst-case scenario, target prices & more

The overhang on JSW Steel stock may persist in the short-term after the Supreme Court rejected the steel producer's Rs 19,400-crore bankruptcy resolution plan, saying the 2019 plan was illegal and should have been accepted by committee of creditors. But analysts believe the stock is mostly pricing in the negative development. 

The SC rejection came on account of the approach of combining equity and convertible debenture to complete the acquisition and a failure by JSW Steel to execute the plan within the given timeline. 

Implications for JSW Steel
BPSL operates at a capacity of 4.5 mt and has plans to expand this to 5 mt by September 2027. Axis Securities noted that BPSL contributed 13 per cent of JSW Steel's consolidated volumes and 10 per cent of its consolidated Ebitda in 9MFY25. On the acquisition value, implied EV/Ebitda stood at 7 times on BPSL’s FY24 Ebitda of Rs 2,760 crore and 8.2 times on FY25E Ebitda of Rs 2,360 crore, Axis Securities said. 

BPSL production run rate now stands at 4 mtpa and it is expected to generate Ebitda of Rs 4,000 crore, implying valuation of Rs 32,000 crore, Emkay Global said. 

3 possible outcomes
Emkay Global said there are three possible outcomes. In the first one, JSW Steel may file a review petition. Emkay sees a low probability of a reversal in the SC’s stance.

In the second scenario, creditors may find new suitor for BPSL. Emkay Global sees it as the most optimal outcome, if allowed, as it values BPSL at Rs 32,000 crore, which would cover the debt of Rs 25,000 crore (balance sheet asset value is Rs 24,400 crore.

In the third scenario, it sees complete liquidation. In this case the asset would not realise its full potential in such an event. 

"This outcome has broader implications for the parties involved. From the steel market perspective, 4.5mt of capacity (2.4 per cent of India’s capacity) exiting the market would improve supply/demand balance and be favorable for steel prices and sector earnings," Emkay said.

Worst-case scenario
Nuvama believes JSW Steel will soon file a review petition against the recent Supreme Court order and the matter can linger for some time. It would be difficult for the group of creditors to unwind this transaction, which takes its own time, it said. 

"In the worst case, our fair value shall be reduced by Rs 11,400 crore (Rs 47 per share), assuming JSW loses control over BSPL and receives only Rs 19,700 crore paid to creditors and does not receive even the investment made to expand the capacity from 2.75mtpa to 4.5mtpa (looks unlikely as the company will file a case to recover this)," Nuvama said.

The brokerage has a ‘Reduce’ rating on JSW Steel with a target of Rs 977, but it believes the 6 per cent stock price fall on May 2 more than factors in the negative news. 

"In the near term, any volume hit, if it happens, will boost domestic steel prices," it said.

In the case of BPSL going out of JSW’s hands, Emkay expects FY26E consolidated Ebitda of Rs 35,000 crore to be impacted to the tune of 10-11 per cent. As part of the agreement, JSW Steel should re-gain its acquisition price of Rs 19,400 crore, in case of an adverse legal judgment, Emkay said.

Axis Securities reiterated 'Sell' on JSW Steel due to rich valuation of 8.7 times FY27E EV/Ebitda, which is a 20 per cent premium to its past ten-year average.