What are the pros and cons of investing in JSW Steel?
The company has a well-established position in the Indian steel industry and good growth prospects. But recent performance has been sub-par and the company has a high level of debt. Should you invest?
JSW Steel and other steel stocks are in the news. The company’s shares jumped 4.9% on 31 December, largely on account of the government’s decision to impose import tariffs on steel products. Before the recent correction, the stock had been trending up for more than two years.
Import tariffs help protect pricing of domestic steel producers by preventing cheaper imports, so what does the future hold for the stock? Today, we will discuss the pros and cons of investing in JSW Steel. But first, let’s talk about the latest import tariffs.
Steel stocks rose on 31 December after the Indian government announced a three-year import tariff on steel products. This ‘safeguard duty’ will be 12% in the first year, 11.5% in the second year, and 11% in the third year. The countries that will face the tariff are Vietnam, China, and Nepal. Products covered are non-alloy and alloy flat steel. Speciality steels have not been included.
Pros of investing in JSW Steel
Well-established: The company has a well-established position in the Indian steel industry. It manufactures and sells a wide range of steel products, including flat and long steel products, at its facilities across India. It sells its products under various brands and caters to several industries. Its diversified portfolio includes hot-rolled, cold-rolled, galvanneal, galvanised/galvalume, pre-painted, tinplate, electrical steel, TMT bar, wire rod, special steel bar, and round & bloom.
Good growth prospects: JSW Steel has grown steadily over the years and is now in an expansion phase for the next leg of growth. JSW Steel aims to almost double its production capacity to 50 million tonnes per annum (MTPA) by 2030. It plans to invest ₹500-600 billion to set up a 10 MTPA green steel plant in Salav village, Raigad district, Maharashtra.
The plant will be designed specifically to serve the European market which, as of 1 January 2026, requires importers of carbon-intensive goods (such as steel, cement, and aluminum) to pay a ‘carbon tax’ based on the greenhouse gases emitted during their production abroad. The project is part of JSW's brownfield expansion, expected to be completed over three to four years.
Cons of investing in JSW Steel
Poor recent performance: The company has struggled to deliver on growth targets over the past two years. The top line and bottom line have both been more or less flat since FY23.
Although cash flows have been strong, the lack of growth has left the market unimpressed. Return ratios have also been muted, with the return on equity (ROE) and return on capital invested (ROCE) in single digits in FY23 and FY25. A small recovery in FY24 was short-lived.
High debt: On top of this, the company has been in investment mode, resulting in higher debt. The debt-to-equity ratio has been historically high, coming in at 1 in FY25 and 0.9 in FY24.
Should you consider investing?
Founded in 1982, JSW Steel has expanded through mergers and acquisitions, including those of Ispat Steel and Bhushan Power & Steel. It operates in India, the US, and Italy.
There's been a rise in demand for specialty steel across industries such as renewable power, automobiles, and white goods. India's reliance on steel imports has prompted JSW Steel to scale up its value-added product capacities to drive import substitution and achieve self-reliance.
The company plans to increase the share of high-margin, value-added products in its product mix to protect margins during steel price volatility. It consistently invests in the latest technologies to enhance its production processes and ensure superior quality products.
However, a big concern is its vulnerability to global commodity prices. Prices of finished steel and the raw materials to produce it, are closely linked to global economic conditions. A slowdown in infrastructure spending, construction, or manufacturing could lead to sharp drop in earnings and the stock price.
For an overview of the sector, read our steel sector report.
And remember to always evaluate a company's fundamentals, corporate governance, and stock valuations before making an investment decision.
Happy investing!
This article is syndicated from Equitymaster.com
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