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Published on 11/08/2020 1:12:13 PM | Source: ICICI Securities Ltd

Buy JSW Steel Ltd For Target Rs.269 - Sushil Finance

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Capital Expenditure to expand the upstream and downstream capacities of the company

JSW has focused on capacity addition consistently and maintained the balance in expansion of upstream and downstream capacities. The company has planned Capex of about Rs.9,000 Cr for FY2021 - cut back from earlier guidance of Rs.16,340 Cr. The capex entails increasing the crude steel capacity from 18 MTPA in FY18 to 23 MTPA by FY22. Crude steel capacity to increase by 33% and downstream capacity is expected to increase by 50%. Additionally, the company has planned a number of cost savings projects.

 

Backward Integration expected to enhance Raw material security and availability

JSW is aiming to address the disadvantage of limited backward integration by acquiring iron ore mines to backward integrate itself and become self reliant for the basic raw material. This will additionally help JSW improve the utilization of its conveyor belt which currently has carrying capacity for 20mtpa of iron ore. The co. has secured operational rights of 4 Iron Ore mines in Odisha and 3 iron ore Mines in Karnataka with a reserve of more than 1 Bn tones of Iron ore.

 

Domestic and global macro scenario to improve by the start of H2FY21

COVID-19 pandemic has created severe uncertainty that impacted the economic activities of the country when our government imposed the largest lockdown in the world. However, policy stimulus of 10% GDP of the country or ~Rs. 20 trillion has helped the economy to come out of the stagnant state and to start regaining momentum. Several organization reported normal business conditions once the lockdown was eased in several states. However, various international bodies like IMF and World Bank expects the global and Indian economic recovery to start from H2FY21

 

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