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Results Synopsis

JSW Steel's Q2FY25 performance was above the consensus expectations, primarily driven by robust volumes and effective cost management, which offset the declines in net steel realization (NSR). Net revenue from operations decreased by 7.6% QoQ and 11% YoY, with EBITDA down 1.3% QoQ and 31.1% YoY. A decline in coking coal costs of $27/t provided margin support, with an anticipated further $20-25/t reduction for Q3FY25. The company is advancing its backward integration initiatives, expanding iron ore mining capacities in Karnataka and Goa, while value-added products continue to hold a substantial 60% share of its product mix.

Capacities ramp-up underway – Vijayanagar 5.0 mtpa + 2.0 mtpa debottlenecking and relining of BF-III to bring in volumes

JSW Steel’s current Indian capacity stands at 34.2 mtpa, with the ongoing 5.0 mtpa expansion expected to be fully ramped up by Q4FY25. In H1FY26, the BF-III blast furnace at Vijayanagar is slated for relining and capacity enhancement, projected to add 1.5 mtpa. Furthermore, debottlenecking activities at Vijayanagar are anticipated to contribute an additional 0.5 mtpa, collectively driving meaningful volume gains over the course of the next year and a half.

Looking ahead, we project production to grow from ~28 mt in FY25 to about ~34.6 mt by FY27E, marking a strong CAGR of 11%. Sales are projected to grow alongside, moving from ~27 mt to ~33.2 mt by FY27E. Altogether, it’s a significant capacity buildout that aligns well with JSW Steel’s long-term growth goals.

Valuation and View

With steel prices anticipated to have bottomed out and China’s recent stimulus measures likely to boost steel prices, we expect an improvement in steel spreads from the lows seen in H1FY25. Such an environment could provide JSW Steel with favorable conditions to leverage its expanded capacity effectively.

We project Revenue/EBITDA growth for JSW Steel at a CAGR of 13%/25%, over FY25-27E. With our estimates now rolled over to FY27E, we are raising JSW Steel’s valuation multiple to 7.5x. We believe that the company's aggressive capacity expansion, combined with an anticipated recovery in steel prices, positions JSW Steel in a ‘sweet spot’ to capitalize on growth opportunities within the Indian steel sector.

We value JSW Steel at 7.5x FY27E EV/EBITDA to arrive at our revised target price of Rs 1,045/sh.

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