Buy This Steel Stock For Good Gains As Expansion Plans Will Drive Earnings

JSW Steel is one of the leading producers of steel in India. The Company's manufacturing unit in Vijayanagar, Karnataka is the largest single location steel-producing facility in India with a capacity of 12 MTPA. Broking firm, Anand Rathi has a buy call on the stock for good gains.

Consolidated revenues rise at JSW Steel

JSW Steel Limited reported a growth of 74.2% in its consolidated revenues at Rs.3,80,710 million in Q3-FY22 as against Rs 2,18,590 million in same quarter previous year. The growth was driven by both increase in volumes and better overall realisation during the quarter.

"The company's consolidated operating margins during the quarter stood 24% at Rs.91,320 million as against 27.2% at Rs.59,460 million in Q3-FY21, a contraction of ~320 basis points. The decline in margins was due to elevated prices of coking coal and higher power costs while lower ore prices partially offsetted the cost increase," Anand Rathi said in a report.

Buy This Steel Stock For Good Gains As Expansion Plans Will Drive Earnings

EBITDA sees an improvement for JSW Steel
JSW Steel's standalone EBITDA per ton for the quarter improved to around Rs.17,000 in Q3-FY22 as against around Rs.14,500 in same quarter previous year. The company's consolidated profit after tax margins stood 9.5% at Rs.36,190 million in Q3-FY22 as against 13% at Rs.28,370 million in Q3-FY21.

"The company's latest subsidiary Bhushan Power & Steel registered crude steel production of 0.64 million tonnes and sales volume of 0.58 million tonnes. Exports accounted for 36% of the sales mix. Revenue from operations and operating EBITDA for the quarter stood at Rs.5,083 crores and Rs.1,547 crores, respectively," Anand Rathi has said.

Expansion to drive revenues in the future

According to the brokerage, on the capex front, the 5 MTPA brownfield expansion at Vijayanagar is progressing well, with civil works underway at the site.

"Long lead-time items have been ordered. The project is expected to be completed by FY2024. The Downstream expansion projects at Vijayanagar, Vasind and Tarapur are in advanced stages of implementation, with several lines having been commissioned in 9M FY2022. The Company's capex spent was Rs.40,260 million during Q3-FY22 and Rs.1,03,530 million for 9M-FY22," Anand Rathi has said.

Guidance for JSW Steel and Valuations

"On guidance front, the management has guided to achieve steel production and sales volume at 17.5 Mn.T and 16.5 Mn.T respectively for the financial year FY-22. The guidance is marginally lower from earlier guidance due to delay in commissioning of Dolvi project, now commissioned.

We have incorporated latest numbers and revised our projections for the company. We remain positive for long term on JSW Steel Limited with a BUY rating on the stock and a target price of Rs.757 per share," Anand Rathi has said.

The stock of JSW Steel was last seen trading at Rs 663 on the NSE.