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Analysts raise JSW Steel price targets by up to 10% post strong Q2 earnings

Analysts have raised the target prices on shares of JSW Steel following better-than-expected earnings for the September quarter and as they see the higher prices of steel and strong capacity addition by the company boosting earnings.

Analysts have raised target price for shares of the country’s largest steelmaker by 4-10%, with CLSA Asia Pacific Markets, Nuvama Institutional Equities and Centrum Broking also upgrading rating for the shares.

JSW Steel currently has the capacity to produce around 28 million tonne of steel each year, and this is expected to rise to around 37 million tonne over the next 15-18 months as some of the current expansion plans are completed.

With the demand for steel expected to remain robust in the country over the next few years, and JSW Steel’s pole position, the company is seen as a key beneficiary of this robust domestic demand. The World Steel Association has estimated that the demand for steel is likely to grow by 8.6% in 2023, and 7.7% in 2024.

“With expansion projects on track, we see a long runway for growth,” CLSA said.

The flagship company of the JSW group, meanwhile, has also guided for raising its production capacity to 50 million tonne by 2030.Analysts see this enhanced production capacity of the company powering a 9-11% volume growth between 2023-26 (April-March), while some of its other projects boosting profitability.”Other cost-saving and downstream projects, commissioning over FY2024-25E, would enhance margins by Rs 2,000-3,000/tonne on a steady state basis,” Kotak Instituional Equities said.

While some on Street have frowned over the company’s recent increase in borrowings, others believe that it is not a cause for concern.

“We believe that debt has peaked out and future organic capex shall be internally funded, and expect net debt to fall to Rs 57,250 crore by end-FY25 (net debt/EBITDA: 1.8x),” Nuvama Institutional Equities said.

JSW Steel’s consolidated net debt rose to nearly 70,000 crore rupees as on September-end, while its net debt to operating profit ratio stood at 2.52 times, down from 3.14 times a quarter ago.

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