Shares of JSW Steel Ltd have gained nearly 43% from their 52-week low seen in May. Many analysts believe valuations are expensive at current times. Heavy debt on the company is a matter of concern. JSW’s Consolidated Net Debt 69,498 crore by December-end, up 5.7% from September-end. Loans increased due to higher working capital and adverse foreign exchange impact.
Ambit Capital analyst Satyadeep Jain said, “The increase in debt in the third quarter means JSW Steel’s enterprise value is now higher than previous peaks, while earnings recovery currently outperforms peers.” net debt.
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In its December quarter (Q3FY23) earnings call on Friday, JSW’s management told analysts that debt will come down going forward, helped by favorable currency movement and lower inventory. The financial position of the company in the third quarter was good. It turned a net profit for the quarter from a loss in Q2 on a standalone as well as a consolidated basis. However, earnings declined sharply year-on-year due to a decline in exports, among other factors. On the bright side, lower coking coal prices (down about $100 a tonne sequentially) led to a strong recovery in standalone EBITDA per tonne in the third quarter from the multi-quarter low seen in the second quarter.
Overall, Consolidated EBITDA 4,547 crores.
The company expects coking coal cost to remain in a range in the fourth quarter. “With steel prices stable and no major cost escalation, we should see margin improvement in the near term,” said analysts at Motilal Oswal Financial Services. “Rising iron ore prices could constrain profitability compared to integrated steel players,” analysts at ICICI Securities Ltd said in a report on January 21. The brokerage sees this as a factor that makes JSW more vulnerable to the steel cycle than peers.
To be sure, JSW’s volume growth outlook is strongly supported by its expansion projects. Better-than-expected demand could boost earnings in the coming quarters. Still, as mentioned earlier, valuations are expensive and that could well limit meaningful near-term upside in the stock.
According to Jain, “JSW has a better ROCE track record over the years. While we see upside in both, we rate Tata Steel higher in our pecking order as it has higher deleveraging capacity and the stock valuation is relatively cheaper.” “
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