Hold JSW Steel Ltd for the Target Rs. 1,118 By Prabhudas Liladhar Capital Ltd
Strong volume growth amid softer prices
Quick Pointers:
? CU at Indian ops stood at 92%. VASP sales stood at 4.31mt, up 20% YoY.
? Capex of ~Rs690bn planned for period starting H2FY26 and spanning over the next 3.5 years.
JSW Steel (JSTL) reported robust operating performance driven by higher volumes from JVML ramp up. Cons volume rose 20% YoY, supported by robust domestic demand, while average cons NSR declined 4.6% QoQ due to weak domestic prices in seasonally weak monsoon quarter as both flat and longs steel prices declined 4-10% QoQ in Q2. RM costs declined due to decrease in coking coal costs while P&F costs declined aided by higher use of RE in power usage and better product mix which led to JSTL delivering cons EBITDA/t of Rs10,693 (adjusting for forex M2M loss of Rs7.34bn) better than PLe of Rs9.524. Adj. std EBITDA/t was at Rs9,709. We expect steel prices to firm up in next two months with increase in govt spending on infra capex and GST led enthusiasm in user industries, supporting better realisations in H2FY26.
With the expected extension of safeguard duty for three years by GoI and strong demand going ahead, sector fundamentals appear favourable. We believe a) planned ramp up of JVML b) capacity upgradation at #BF3 and c) JSTLs continued efforts to reduce costs and SC clearing BPSL case removes overhang from the stock and would drive earnings growth over FY25-28E. We tweak our FY27/28E EBITDA by -4%/4% respectively, factoring in lower pricing assumptions. We expect volume/ EBITDA CAGR of 10%/27% over FY25-28E. At CMP, the stock is trading at 9x/7.6x EV of FY27/28E EBITDA. Maintain ‘Hold’ with revised TP of Rs1,118 (earlier 1,151), valuing at 8x EV of Sep’27E EBITDA.
Steady growth driven by JVML ramp-up and exports: Cons revenue grew 14% YoY to Rs452bn (+5% QoQ; PLe Rs 468bn) on strong volumes which grew 20% YoY to 7.34mt (PLe 7.32mt) on JVML ramp up. Average cons realisation declined 4.6% QoQ to Rs61,515/t (-5% YoY; PLe Rs63,934/t) as both Flat and Longs steel prices declined during the qtr. Standalone volumes grew 10% YoY to 5.81mt (+10% QoQ). BPSL volumes grew 12% YoY to 0.83mt (+6% YoY). JVML sales volume grew 6.3% QoQ to 0.84mt as furnace being ramped up since Q4FY25. Exports volumes from India increased 69% YoY to 0.71mt with export share rising to 10% from 7% YoY/QoQ.
Cost savings and volume gains lift profitability: Cons EBITDA grew 44% YoY to Rs78.5bn (-1% QoQ; PLe Rs69.71bn) on strong volumes across regions and lower mining royalties. Cons EBITDA per ton grew 20.6% YoY to Rs10,693/t (-10% QoQ, PLe Rs 9,524/t). RM cost per ton declined 8% YoY to Rs31,717 on soft coking coal costs; P&F cost per ton declined 12% YoY to Rs5,580. Mining premium declined 33% YoY to Rs1,974/t. Other expenses per ton increased 6% YoY to Rs10,770. Std EBITDA grew 22% YoY to Rs56.4bn (-5% QoQ) higher than PLe of Rs52.2bn.
US loss narrows, BPSL and Coated boost EBITDA: US subsidiary (Ohio) EBITDA loss narrowed YoY to marginal loss at USD4/t as prices softened in Q2. Italy ops improved QoQ but EBITDA declined 9% YoY to EUR5.6mn with EBITDA/t of EUR71. Bhushan (BPSL) EBITDA grew 68% YoY to Rs7.2bn; while EBITDA/t improved 50% YoY to Rs8,723 on low base. Coated products EBITDA/t improved 73% YoY to Rs5,974/t (up 18% QoQ).
Q2FY26 Conference Call Highlights:
? Domestic sales rose 14% YoY, outperforming the industry growth of ~9% in the quarter on ramp of JVML.
? Capacity utilisation at Indian operations stood at 92%. Value-added and special products sales stood at 4.31mt, up 20% YoY.
? Capex during the quarter stood at Rs31.35bn. Revenue acceptances as of Q2FY26 were USD2.35bn.
? JSTL’s board has approved a 1mtpa EAF project in Kadapa, AP, slated for completion by FY29 end. The plant will include a section mill for structural steel used in construction and infra, with scope for future expansion depending on availability of iron ore in the region. ? The board also approved a 1mtpa section mill at the Raigarh plant for structural steel production, along with facilities at Salem for bearings and premium niche-grade steel.
? JSTL commissioned India’s first 25MW green hydrogen electrolyser, with 3,800tpa capacity, to supply the Vijayanagar DRI plant and cut GHG emissions
? JSTL received board approval for 2.5GW of RE and 320MWh of battery storage; RE capacity at the end of Q2FY26 stood at 885MW.
? The slurry pipeline which was transferred to JSW Infra is slated for commissioning in Q4FY27.
? The 3mt #BF3 at Vijayanagar was shut down in late Sep'25 for relining and capacity upgradation to 4.5mt, and ops are expected to resume by Feb'26.
? The Dolvi Phase III expansion from 10mt to 15mt is progressing as planned, targeted for completion by Sept'27.
? A capex of ~Rs690bn is planned for the period starting H2FY26 and spanning over the next 3.5 years.
? US operations reported slightly lower EBITDA due to shipment spillovers at the plate and pipe mill into Q3.
? JSTL anticipates coking coal costs to rise by ~USD 3-5 in Q3
? Captive iron ore consumption during the quarter stood at ~30%. JSTL expects iron ore prices to decline in Q3. Captive iron ore availability in FY26 is estimated at ~22-23mt, accounting for about 36% of JSTL’s total requirement.
? Cons net debt as of Q2FY26 was Rs791.5bn, down Rs7bn QoQ.
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