Buy JSW Steel Ltd For Target Rs.1,470 by Motilal Oswal Financial Services Ltd
Earnings beat driven by strong volume; outlook robust Consolidated performance
* Since BPSL has been de-consolidated w.e.f. Mar’26 end, the YoY financials are not comparable. Comparing with adjusted ex-BPSL pro forma for 2QFY26, the 2QFY27 revenue stood at INR545b (vs. our est. INR486b), up 31% YoY and 15% QoQ, driven by strong volume growth.
* Adj. EBITDA stood at INR99.4b (+39% YoY and +6% QoQ, comparing with ex-BPSL pro forma), which came in above our estimates mainly due to higher-than-expected volume. Adj. EBITDA/t was in line at INR13,326/t (+24% YoY, ex-BPSL pro forma), down 11% QoQ, due to higher coking coal prices and lower realizations.
* APAT stood at INR51b (+10% QoQ) vs. our est. of INR33.1b. The beat was mainly driven by higher-than-expected operating performance and lower interest costs due to lower debt and interest rates.
* Consolidated 2Q production stood at 7.27mt (+5% YoY and +10% QoQ) on account of Vijayanagar BF-3 ramp-up. Sales volume stood at 7.46mt, and comparing with adjusted ex-BPSL pro forma for 2QFY26, volume grew 13% YoY and 19% QoQ during the quarter.
* Consol. ASP stood at INR73,000/t (vs. INR75,780/t in 1QFY27 and INR62,640/t (ex-BPSL) in 2QFY26), mainly driven by steel price recovery.
* Net debt-to-EBITDA stood at 1.28x in 2QFY27 vs. 1.46x in 1QFY27. Net debt as of Sep’26 stood at INR445b, down by INR16.8b QoQ.
Highlights from the management commentary
* Management expects steel volumes to increase in 3QFY27, driven by full production from Vijayanagar BF3. The company is on track to achieve its FY27 production and sales guidance.
* Steel prices recovered by 2Q end as monsoon conditions eased and construction activity improved. Management indicated that the Oct’26 price hikes, along with the price recovery during Aug-Sep’26, will reflect in 3Q realizations.
* Coking coal costs increased by ~USD10/t in 2QFY27 against the earlier guidance of USD12-15/t. Management expects coking coal costs to increase by ~USD25/t in 3QFY27.
* Iron ore costs were slightly higher in 2QFY27, due to supply constraints, including disruptions at NMDC's Chhattisgarh mines and monsoon-related logistical issues in Central India and Odisha. Management expects costs to remain marginally higher in 3QFY27, while domestic iron ore prices could soften over coming quarters as supply bottlenecks ease and domestic prices catch up with international prices.
* Management revised its capex pipeline from ~INR1.3t to INR1.48t, to be deployed over the next 5-6 years.
Valuation and view
* JSTL delivered better-than-expected earnings in 2Q, supported by strong volume growth owing to Vijaynagr ramp-up. We remain constructive on the company's medium-term outlook, underpinned by the commissioning and ramp-up of new capacities, robust domestic steel demand, and rising share of VAP. In addition, enhancing captive iron ore and improving coal security should strengthen cost competitiveness and support margin expansion.
* We maintain our FY27/28 earnings estimates, factoring in sales volume of +30mt by FY28E, driven by the ramp-up of new capacity. Despite input cost volatility, we believe EBITDA/t will rebound to ~INR14,000/t by FY28E on account of domestic steel price recovery.
* With the transfer of BPSL to JFE JV via a slump sale, the company’s consolidated debt has declined significantly to INR445b as of Sep’26. This translates to a net debt-to-EBITDA ratio of 1.28x in 2QFY27. The sharp deleveraging has strengthened JSTL’s balance sheet, unlocking future capex plans.
* At CMP, JSTL trades at 6.9x FY28E EV/EBITDA. We largely retain our FY28 earnings estimate and reiterate our BUY rating on the stock with a TP of INR1,460, valued on SoTP basis.
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