Rs 3.40/Sh Dividend: Large Cap Steel Company Shares Slumps On Negative Brokerage Reports; Do You Own?

JSW Steel, a large cap steel company, witnessed a second consecutive day of trading cuts, with shares falling by more than 1% to Rs 817.40 per share as of 12:05 pm on the National Stock Exchange (NSE). This decline follows a recent downgrade by CLSA on steel companies, expressing caution amidst a rally in metals that seems to have left the steel sector unimpressed.

JSW Steel's 52-week high stands at Rs 895.60 per share, while its 52-week low is Rs 649.75 per share. Despite its recent challenges, the company's current market capitalization on BSE remains substantial at 1,99,879.18 crore.

JSW Steel Ltd. has been a consistent player in the market, having declared 25 dividends since August 1, 2002. Over the past 12 months, an equity dividend amounting to Rs 3.40 per share has been declared, offering a dividend yield of 0.42% at the current share price of Rs 816.0500. The face value of JSW Steel Ltd.'s shares has been split once, from Rs 10 to Rs 1, back on January 4, 2017.

The recent downgrade by CLSA has sent ripples through the steel sector, with Tata Steel also facing a downgrade to 'sell' from 'outperform,' and JSW Steel downgraded to 'sell' from 'underperform.' The target price for JSW Steel has been revised to Rs 730 per share from Rs 810 per share.

CLSA's cautionary stance is rooted in the anticipation of a shift in profit pool towards miners, expectations of lower spreads, and elevated valuations for stocks, despite spread compression not reflected in consensus estimates. The brokerage warns of the impact of India's rapid blast furnace-based steel capacity expansion, forecasting lower spreads and a shift towards raw materials.

Despite the cautious outlook, JSW Steel has reported a mixed performance, as per a report from brokerage firm Elara Capital. While net sales grew approximately 7% YoY, they fell around 6% QoQ to approximately Rs 41,300 crore. EBITDA rose by about 58% YoY but dropped about 9% QoQ to approximately Rs 7,200 crore. Adjusted PAT surged around 393% YoY and about 3% QoQ to approximately Rs 2,400 crore.

Elara Capital acknowledges the completion of ongoing growth capex that may increase steelmaking capacity to 37 million tonnes by FY25. JSW Steel aims to reach a capacity of 50 million tonnes by FY31. Despite the caution in the market, Elara Capital reiterates an "Accumulate" rating, adjusting EBITDA estimates for FY24 and FY25 and rolling over to December 2025 with a higher target price of Rs 909 per share from Rs 867 per share based on 7x December 2025 EV/EBITDA.

Another report from brokerage firm Centrum highlights JSW Steel's better-than-expected EBITDA of Rs 7,185 crore, down 9% QoQ. Sales volume faced a 3.8% QoQ decline due to higher imports in the retail segment and lower export demand, offset by a 2.8% QoQ increase in average realization. The report mentions that Q4FY24 might see a decline in realization, partially offset by improvements in export sales. Centrum maintains an "ADD" rating with a target price of Rs 868 per share, valuing at 6.5x FY25/FY26 average EV/EBITDA.

The steel giant is on the verge of commissioning a 5 million tonnes per annum (mtpa) and 1.5 mtpa capacity expansion at Vijaynagar and BPSL by the end of Q4FY24. Despite these expansion plans, the steel sector faces headwinds, with higher steel production potentially straining the iron ore and coking coal supply, as noted by CLSA. India's role in the coking coal balance and rising demand could offset China's avoiding Australian coal.

JSW Steel's shares have witnessed a decent journey in the market, surging a little over 21% in the last year. However, on a year-to-date basis, the stock has fallen just over 7%, signalling a challenging period for the steel giant. Over the last three years, the stock has shown resilience, growing more than 101%.

Investors and industry experts are closely monitoring developments in the steel sector, and the downgrade by CLSA serves as a cautionary tale. The coming months will reveal how JSW Steel and its counterparts adapt to the changing market dynamics and whether the caution expressed by CLSA proves to be a temporary setback or a lasting trend.