Motilal Oswal is bullish on JSW Steel has recommended buy rating on the stock with a target price of Rs 366 in its research report dated December 13, 2018.
Motilal Oswal's research report on JSW Steel
We visited JSW Steel’s (JSTL) Vijaynagar steel plant on 11-12th December 2018. This plant is the largest single location steel producing facility in India, accounting for 12mtpa of JSTL’s overall capacity of 18mtpa. We note capacity at this plant will increase by 1mtpa to 13mtpa in FY20 as JSTL executes its 6.7mtpa overall expansion plan. The plant has the highest labor productivity, zero effluent discharge (95% of process waste is reused) and lower carbon footprint (96% of coke oven gases are recycled). Nearly 11mtpa of ‘C’ category iron ore mines have been allocated through auctions to various steel producers, which has improved ore availability to 39mtpa as against demand of 32-35mtpa. We visited corex furnaces, BF4 (blast furnace), HSM2 and interacted with management on day one, and CRM complex, pellet plant site and pipe conveyor on day two. Corex furnaces are operating at optimal capacity, with a total fuel rate of 1,050kg/thm (including coke rate of 180-200kg). BF4 is operating at a total fuel rate of 530kg (including coke rate of 360kg). The expansion program encompasses various upstream and downstream projects. Pipe conveyor is under trial run, which will save iron ore transportation cost by INR300/t, implying savings of INR5-6b on an annual basis. All captive mines are expected to be fully operational in FY19, which will save nearly INR10-12/t on an annual basis in transport cost. Although the pellet plant is in early stages of construction, all other projects are moving at a brisk pace. The expansion will increase cold rolling capacities as well, ensuring a similar product mix on higher volumes.
Outlook
JSTL has also acquired capacities in countries like the US and Italy, which are net importer of steel and net exporter of steel scrap. The acquisition of Acero has come at a very low cost. A turnaround of this asset can create significant value for the company. The stock is trading adjusted EV/EBITDA of 6x (CWIP at book value) and FCF yield (no growth basis) of 13%. JSTL deserves higher EV/EBITDA of 7x for lower volatility in earnings, and regular and consistent value-accretive growth. We value the stock at INR366/share. Reiterate Buy.
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Read More
