 "JSW steel")
JSW Steel, JSPL share price after Nomura initiates ‘Buy’
JSW Steel and Jindal Steel and Power (JSPL) share prices jumped up to 3.1 per cent on Thursday (October 3). While JSW Steel stock clocked an all-time high of Rs 1,059.95 per share, JSPL registered an intraday high of Rs 1,065 per share. The stocks advanced after global brokerage Nomura initiated coverage on them with a ‘Buy’ rating with a target of Rs 1,220 and Rs 1,200 per share, respectively.
As per Nomura, the mid-cycle earnings of JSW Steel and JSPL have structurally improved on the back of stronger domestic demand, cost saving measures, and improved efficiency.
Nomura analysts peg the mid-cycle earnings before interest, tax, depreciation, and amortisation (Ebitda) at Rs 11,000-12,000/tonne for JSW Steel and JSPL and believe 7.5x to be the new mid-cycle multiple for these companies.
Individually, Nomura believes JSW Steel’s upcoming capacity alignment with cyclical recovery and raw material backward integration augur well for the company.
JSW Steel is expected to add 7MT capacity by FY28F at a 5 per cent compound annual growth rate (CAGR) over FY24-28F. Additionally, it is also working towards becoming 50 per cent self-reliant in iron ore.
Furthermore, the brokerage believes that JSW Steel is better placed than other integrated players.
For JSPL, Nomura is bullish on its capacity addition (adding 6.3MT by FY27F at an 18 per cent CAGR over FY24-27F), enhanced raw material integration (newly acquired thermal coal mines should meet 100 per cent requirement), and possible cost reduction after the commissioning of pellet and captive power plants.
In the past one year, shares of JSW Steel have gained 33.4 per cent while JSPL shares have risen 48.2 per cent as against BSE Sensex’s rise of 29 per cent.
Nomura on Indian steel sector
Nomura anticipates India’s steel industry to add roughly 23MT crude steel capacity over FY24-27F, at an
implied 4.8 per cent CAGR. This, the brokerage said, will be in line with the FY15-24 long-term average.
Steel majors (JSW, JSPL, Tata Steel, and ArcelorMittal & Nippon Steel JV) will together contribute around 87 per cent towards the capacity expansion.
“Although significant capacity will come onstream over the next three years, we believe the India steel industry is entering a sweet spot as we expect capacity addition to lag demand growth; utilisation improving marginally from 92 per cent in FY24 to 93 per cent in FY274F. Even if we were to assume a fairly conservative 6 per cent CAGR steel demand now through FY27F vs the 7 per cent CAGR over the prior five years, we expect incremental capacity additions to lag demand growth through FY27F,” Nomura said.
First Published: Oct 03 2024 | 10:16 AM IST
