Buy JSW Steel for the Target Rs 1,470 by Motilal Oswal Financial Services Ltd
In-line operating earnings; outlook remains bright Consolidated performance
* As BPSL has been de-consolidated w.e.f Mar’26 end, past reported financials are not comparable to 1Q FY27. Comparing with the proforma performance (ex-BPSL) of past quarters, the 1QFY27 revenue stood at INR473b growing 19% YoY and 2% QoQ. This growth mainly supported by better realisation, while partly offset by muted volumes.
* Adj. EBITDA stood at INR93b (+38% YoY and +24% QoQ; proforma basis) which came in-line with estimates. This translates to an Adj. EBITDA/t of INR14,997/t was up 27% YoY and 23% QoQ (vs. our est. of INR14,634/t) in 1QFY27 driven by higher NSR, partly offset by higher coking coal prices and other input costs.
* APAT stood at INR46.4b (+93% YoY and 39% QoQ) against our est. of INR37.3b. The beat was mainly driven by higher than expected other income and lower finance costs.
* Consolidated production for the quarter stood at 6.59mt on account of Vijayanagar BF-3 shutdown for expansion. The sales volume stood at 6.25mt and comparing with adjusted ex-BPSL profoma for 1Q/4QFY26, the volume grew 4% YoY but declined 12% QoQ during the quarter.
* Consol. ASP stood at INR75,780/t in 1QFY27 against INR66,000/t during 1Q/4QFY26 (ex-BPSL). This sharp surge was mainly driven by steel price recovery in India over safeguard duty as well as in overseas market.
* Net debt/EBITDA ratio stood at 1.46x in 1QFY27 vs 1.81x in 4QFY26. Net debt as of Jun’26 stood at INR462b, down by INR77b QoQ.
Highlights from the management commentary
* Steel volumes is expected to improve in 2QFY27, driven by the ramp-up of the Vijayanagar BF3 expansion and higher volume from Ohio operations.
* Flat steel prices have remained relatively resilient, while long steel prices have corrected due to seasonal monsoon weakness. Management indicated that HRC prices declined by INR1,000/t during 2QFY27. In contrast, Rebar prices corrected sharply by INR7,000-8,000/t during 2QFY27 and remained stable in Jul’26, management believes the bulk of the correction has already played out.
* Coking coal prices increased by ~USD17/t in 1QFY27, slightly above earlier guidance of USD12-15/t. Management guided coking coal costs to increase by USD12-15/t in 2QFY27, while the recent moderation in coking coal prices should benefit costs from 3QFY27 onwards.
* Iron ore costs increased by ~INR230/t in 1QFY27, while the domestic ore prices have started easing recently. Management expects to see cost benefit in 2QFY27 end and become more meaningful in 3QFY27.
* The company incurred INR49b capex during 1QFY27 and reiterated its FY27 capex guidance of INR220-240b
Valuation and view
* JSTL delivered earnings broadly in-line with expectations, supported by NSR improvement. 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 availability and improving coal security is expected to strengthen cost competitiveness and support margin expansion.
* We maintain our FY27/28E earning estimate, factoring a 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 transferred of BPSL to JFE JV via a slump sale, the company’s consolidated debt have declined signifiacity to INR462b as of Jun’26. This translates to Net debt/EBITDA ratio stood at 1.46x in 1QFY27 vs 1.81x in 4QFY26. The sharp deleveraging have strength JSTL balance sheet, unlocking the path for future capex.
* At CMP, JSTL trades at 7.5x FY28E EV/EBITDA, and we reiterate our BUY rating on the stock with a TP of INR1,470, valued on SoTP.
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