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Business News/ Markets / Stock Markets/  JSW Steel Q2 earnings beat estimates. Should you buy, sell or hold the stock?

JSW Steel Q2 earnings beat estimates. Should you buy, sell or hold the stock?

JSW Steel share price flat after Q2 results beat expectations. JSW Steel Q2 profit at ₹2760 crore, revenue grew by 6.72%. JSW Steel's Q2 EBITDA of ₹78.9 billion beats expectations.

JSW Steel share price today opened at intraday high of ₹774.95 apiece on BSE. Premium
JSW Steel share price today opened at intraday high of 774.95 apiece on BSE.

JSW Steel share price was trading flat on Monday's session following the company's Q2 results, which surpassed street's expectations. JSW Steel topline increased by 6.72% and the profit came in at 2760 crore. JSW Steel had declared a loss of 848 crore in the previous fiscal year same period. As compared to the previous quarter, the revenue grew by 5.62%. JSW Steel share price today opened at intraday high of 774.95 apiece on BSE

According to technical analysts, no major traction was seen, but prices have been under a bit pressure following the broader market weakness, at current levels. Analysts see it in a no trading zone, however in case prices dips towards 750 that would be a buying opportunity whereas around 800 one should look to book longs.

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According to a regulatory statement by JSW Steel, the company's total income rose to 44,821 crore in the second quarter of the current fiscal year from 41,966 crore in the same period last year. JSW Steel's costs for the quarter under review were 40,801 crore as opposed to 43,354 crore for the same period last year.

The company said in a statement that it spent 3,701 crore and 3,816 crore on capital expenditures in India during the second quarter of FY24.

Also Read: JSW Steel Q2 FY24 results: profit at 2760Cr, Revenue increased by 6.72% YoY

Here's what brokerage say about Q2 results of JSW Steel; 

Nuvama Institutional Equities 

The brokerage claims that JSW Steel posted better-than-expected Q2FY24 EBITDA of 78.9 billion, up 12% quarter-over-quarter, because of enhanced domestic operations. This is because reduced raw material costs and higher volume offset lower steel prices.

Subsidiaries overseas started to experience losses. QoQ growth in standalone EBITDA/t was 29%, at 12,750. Because of the merger of JSW Ispat, net debt rose to 691.9 billion, up 24 billion on a quarterly basis.

“JSW is on a growth path with 6.5mtpa capacity to be commissioned by end-FY24, leading to a 9% volume CAGR over FY23–26E. We are edging up FY24E/25E EBITDA by 1–3% to factor in higher prices/volumes. This along with a rollover and valuation of 7.5x FY25E/FY26E average yields a fair value of 818 (earlier 755). All in all, upgrade to ‘HOLD’," said the brokerage. 

Motilal Oswal Financial Services

"2QFY24 has been a strong quarter, driven by lower coking coal prices. The recent increase in coking coal prices is anticipated to raise costs for steel makers in 3QFY24. JSTL expects this recent price hike to partially mitigate the impact of the escalating coal prices. We have marginally increased our FY24/25 EBITDA by 5%/3%, driven by strong 2QFY24 performance, the commencement of operations at new iron ore and coal mines. However, these gains will be partially be offset by the rise in raw material costs and a more favorable outlook on domestic steel demand.

We believe the current valuations at 5.9x FY25E EV/EBITDA and 2.1x FY25E P/B fully price in the positives. We reiterate our Neutral rating on the stock with a revised target price of 780 ( 740 earlier)," the brokerage said. 

Also Read: JSW Steel Q2 result preview: Firm to benefit from lower costs, rise in volumes

Sharekhan by BNP Paribas 

The brokerage claims that the Q2FY24 consolidated operating profit of 7,886 crore (up 12% quarter-over-quarter) exceeded their projection since the disappointing performance of the foreign subsidiaries was counterbalanced by better-than-expected standalone volume and margin. Due to a significantly higher tax outlay, adjusted PAT of 2,184 crore (down 10% quarter over quarter) was 18% below their estimate.

Standalone EBITDA increased significantly by 42% quarter over quarter to Rs. 6,898 crore (18% beat) as sustained demand in India drove stronger sales volume growth of 10% quarter over quarter to 5.41 mt, and reduced coking coal costs resulted in a 29% quarterly increase in EBITDA margin to Rs. 12,750/tonne (16% above estimate). Negative market conditions led to poor performance from US subsidiaries in terms of lower volumes and realisation.

"India steel prices have been hiked for the past three consecutive months and that would largely offset recent surge in coking coal/iron ore price and thus steel spreads likely to sustain at current levels in Q3FY24. The company maintained FY24 steel sales volume guidance of 24mt and plans to expand steel production capacity to 37 mt/50 mt by FY25E/FY31E.

Valuation of 7.7x FY25E EV/EBITDA seem rich to us and is factoring in expectation of margin/volume recovery. We do not find comfort in current valuations, given a premium to historical average EV/EBITDA of 6.7x and debt to remain elevated given capex plan. Hence, we maintain our Reduce rating on JSW Steel with an unchanged target price of 700," explained the brokerage.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 23 Oct 2023, 10:59 AM IST
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