JSW Steel Q3 Review: Shares Decline After Q3 Miss, Analysts Say Valuations 'Unfavourable'
Expensive valuations amid weaker Q3 earnings, kept analysts wary, leading to lower ratings and price targets.
Shares of JSW Steel Ltd. declined after it reported weaker-than-expected third quarter profit, while expensive valuations kept analysts at bay.
The steelmaker's net profit fell nearly 89% year-on-year to Rs 490 crore in the three months ended December, according to an exchange filing. That compares with the Rs 1,104.7-crore consensus estimate of analysts tracked by Bloomberg.
JSW Steel Q3 FY23 (Consolidated, YoY)
Revenue up 2.79% at Rs 39,134 crore against the estimate of Rs 39,601.07 crore.
Ebitda down 50.21% at Rs 4,547 crore compared with an estimate of Rs 4,416.01 crore.
Ebitda margin at 11.62% versus 23.99%. The estimate was 11.2%.
Shares of the company closed 1% lower, while the benchmark Nifty 50 gained 0.5%.
The total trade volume was 1.6 times its 30-day average volume. The relative strength index stood at 44.
Of the 32 analysts tracking the stock, six maintained a 'buy', seven suggested a 'hold', while 19 analysts recommended a 'sell', according to Bloomberg data.
The average of 12-month price consensus implies a potential downside of 10.8%, according to Bloomberg data.
Here's what analysts make of the results:
Kotak Institutional Equities
Maintains 'sell' rating on rich valuations, with a fair value of Rs 685, implying a downside of 7.6%.
Company's Q3 FY23 adjusted Ebitda came 6% below brokerage estimate, led by weaker realizations.
Cuts FY23 Ebitda estimate by 14% on lower margins.
Expects Ebitda at Rs 12,249/Rs 13,189 per tonne in FY24/25.
Expects domestic steel prices, that are at a marginal 2-3% discount to import prices, to firm up in the near term.
Expects further recovery in steel margins in Q4, aided by higher steel realisation, stable coking coal costs, lower energy prices and operating leverage.
Expansion projects are on track, and provide strong growth visibility.
Keeps 'underweight' rating on the stock citing unfavourable valuations, with price target Rs 490, implying potential downside of 34%.
Says JSW Steel's market share gain story remains intact.
Believes current valuation at 2.1 times one year forward P/B for FY25 return on equity of 18% is unfavourable.
Anticipates significant underperformance of the stock from current levels.
Pegs weaker-than-expected prices/volume momentum, delay in commissioning of new capacity and higher-than-expected iron-ore cost as risks to downside.
Higher-than-expected improvement in domestic demand and volume growth and faster project ramp up are the risks to upside.
Maintains 'neutral' rating and cuts target price to Rs 710 from Rs 760, implying a 4% downside.
The stock trades at 6.2x on FY24 EV/Ebitda and appears to be fully discounting the benefits, which are likely to accrue through FY24.
Reduces estimates for FY24 marginally.
Expects the pickup in domestic demand and higher exports to support volumes.
Sees margins improving in near term with steel prices standing firm and no major cost increase.
Expects incremental volume to flow in post capacity expansion at BPSL plant.
Expects the commissioning of tinplate line and coke oven batteries at Vijayanagar to support margins.
Systematix Institutional Equities
Upgraded stock to 'buy' and raised target price to Rs 866 per share from Rs 757 earlier.
Buy call based on strong volume growth profile, execution capabilities, and rising iron-ore integration.
Expects strong Ebitda CAGR of 46% over FY23-25.
Says global recessionary fears driven by high inflation and rate hikes are key risks.
Cuts FY23/FY24/FY25 consolidated Ebitda by 8%/7%/1%, respectively, factoring in higher raw material prices.
Expects further recovery in margins over the near term.
Higher raw material prices and delays in project execution pose key risks to rating.