JSW Steel: Robust Q2 results fail to cheer analysts

Our Bureau Chennai | Updated on October 26, 2020

See no headroom after the sharp run-up in share price

Shares of JSW Steel fell over 5 per cent on Monday despite a strong Q2 results posted by the company. According to analysts, after the recent surge in the stock, investors preferred to book profits as they see only little headroom from current levels.


147% rise in 6 months

JSW Steel shares have seen a sharp run up after hitting a 52-week low of ₹132.50 in April. Since then, it jumped 147 per cent to hit a year high of ₹327.30 on last Friday. On Monday, it closed ₹308.15, down 4 per cent over the previous day’s close. In intra-day, the stock tumbled to ₹304.40.

The steel major besides reporting a better-than-expected earnings for the September quarter, also maintained its guidance of selling 15 million tonne of steel this year.

JSW Steel reported a net profit of ₹1,595 crore in the September quarter against net loss of ₹582 crore logged in the June quarter. Sales were up ₹18,662 crore (₹11,545 crore) and the average capacity utilisation increased to 86 per cent from 66 per cent in the June quarter.

However, on a year-on-year basis, JSW Steel net profit was down 37 per cent compared to ₹2,536 crore recorded in the same period last year, on the back of higher tax outgo.

Stock rallied sharply in last three months on the back of sharp uptick in steel prices, led by strong pent-up demand in China and severe shortage due to covid-19, said Prabhudas Lilladher. However, the brokerage maintained its negative outlook on the stock due to stretched valuations, peaked out margins and overhang of Bhushan Power and Steel (BPSL) acquisition. “We maintain Reduce with TP of ₹223 (earlier ₹185),” it further said.

Similarly, Emkay Global Financial, which recommended a Sell on the stock with a price target of ₹256, said: “We believe a large part of the price hikes is done and do not expect prices to improve sharply now”.

Phillip Capital has downgraded the shares to "sell" for a target price of ₹265. “Despite growth story, valuations are expensive and factors in all positives,” the brokerage firm said.

Some bullish bets

However, Motilal Oswal maintained its Buy stance with a target price of ₹372, as it Q3-FY21 margins to be even stronger on higher steel prices.

“On the back of strength in steel prices, we expect the good performance to continue. Going forward, we model EBITDA margin of 19.4 per cent for FY21 and 20.2 per cent for FY22,” said ICICI Securities, while recommending a Hold on the stock with a price target of ₹330.

Nomura Financial Advisory and Securities (India) though downgraded the stock to Neutral has raised the price target to ₹321.

Published on October 26, 2020

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