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 "JSW Steel")
JSW Steel and JSPL stock price after Nomura launches ‘buy’
Share prices of JSW Steel and Jindal Steel and Power (JSPL) jumped up to 3.1 percent on Thursday (October 3). While JSW Steel stock touched an all-time high of Rs 1,059.95 per share, JSPL recorded an intraday high of Rs 1,065 per share. The stocks advanced after global brokerage firm Nomura initiated coverage on them with a ‘Buy’ rating with a target of Rs 1,220 and Rs 1,200 per share, respectively.
At around 9:28 am, JSW Steel share price was up 2.53 per cent, while that of JSPL was up 2.72 per cent on the BSE. In comparison, the BSE Sensex was trading 0.93 percent lower at 83,485.97 around the same time.
According to Nomura, mid-cycle earnings of JSW Steel and JSPL have structurally improved on stronger domestic demand, cost-cutting measures and improved efficiency.
Nomura analysts peg mid-cycle earnings before interest, taxes, depreciation and amortization (Ebitda) at Rs 11,000-12,000/tonne for JSW Steel and JSPL and believe 7.5x is the new mid-cycle multiple for these companies.
Individually, Nomura believes that the upcoming alignment of JSW Steel’s capabilities with cyclical recovery and backward integration of raw materials bodes well for the company.
JSW Steel is expected to add 7 tonnes capacity by FY28F at a compound annual growth rate (CAGR) of 5% over FY24-28F. In addition, it is also striving to become 50 percent self-sufficient in iron ore.
Moreover, the brokerage firm believes that JSW Steel is better placed than other integrated players.
For JSPL, Nomura is optimistic about its capacity addition (adding 6.3 million tonnes by FY27F at a CAGR of 18% over FY24-27F), improved integration raw materials (the newly acquired thermal coal mines are expected to meet 100% requirements) and possible cost reduction. after the commissioning of pellet plants and captive plants.
Over the past year, JSW Steel shares have gained 33.4 percent while JSPL shares have risen 48.2 percent, compared to a 29 percent rise in the BSE Sensex.
Nomura on the Indian steel sector
Nomura expects the Indian steel industry to add around 23 tonnes of crude steel capacity in FY24-27F, at a rate
implied 4.8 percent CAGR. According to the brokerage, this figure will be in line with the long-term average from fiscal years 2015 to 2024.
The steel majors (JSW, JSPL, Tata Steel and ArcelorMittal & Nippon Steel JV) will together contribute around 87 per cent of the capacity expansion.
“Even though significant capacity will come online over the next three years, we believe that the Indian steel industry is entering an ideal situation, as we expect capacity addition to follow demand growth; utilization will improve slightly, from 92% in FY24 to 93% in FY274F. Even if we were to assume a fairly conservative steel demand of a CAGR of 6% now through FY27F, compared to the CAGR of 7% over the previous five years, we expect the additions additional capacity will lag demand growth through FY27F,” Nomura said.
First publication: October 3, 2024 | 10:16 a.m. STI