JSW Steel Q3 Review: Shares Decline After Q3 Miss, Analysts Say Valuations 'Unfavourable'

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:

• 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. 

• 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.