CLSA raises JSW Steel price target to INR880, maintains underperform

CLSA raised its price target on JSW Steel to INR880 from INR825, while maintaining an Underperform rating due to valuation concerns. This follows JSW Steel's Q4 consolidated EBITDA aligning with consensus at Rs63 billion, up 4% year-over-year, and expectations for a boosted Q1 profitability driven by rising steel prices and falling coking coal costs. Production is guided to increase by 2.7 million tonnes year-over-year, offset partially by planned shutdowns, with net debt expected to remain stable in FY26 before decreasing.

Analysis

CLSA has increased its price target for JSW Steel Ltd (NSE:JSTL:IN) to INR880 from INR825, while concurrently maintaining an Underperform rating on the stock due to concerns regarding its elevated valuation. This revision follows JSW Steel's fourth-quarter performance, where consolidated EBITDA grew by 4% year-over-year to Rs63 billion, meeting consensus expectations, and standalone EBITDA per tonne improved by Rs918 quarter-over-quarter to Rs8,783. A significant boost in profitability is anticipated for the first quarter, driven by rising steel prices and falling coking coal costs. JSW Steel's production guidance indicates an approximate 2.7 million tonne year-over-year increase, primarily from the ramp-up of its Jindal Vijayanagar Steel Ltd (JVSL) operations to 5 million tonnes, though this may be partially offset by planned shutdowns. The company's net debt experienced a slight quarter-over-quarter decrease, with CLSA forecasting it to remain stable year-over-year in FY26 before declining thereafter. Management has refrained from commenting on the Bhushan Power and Steel Limited (BPSL) matter as it remains sub judice.

Key Decisions for Investors

• Investors should acknowledge the positive operational momentum, including expected Q1 profitability gains and production increases, but temper expectations due to CLSA's persistent Underperform rating, which is based on valuation concerns despite the raised price target to INR880.
• It may be prudent to assess JSW Steel's current market price against the new target and industry comparables, considering if the anticipated operational improvements are already priced in, as suggested by CLSA's valuation caution.
• Closely monitor steel price movements, coking coal cost trends, the progress of the JVSL ramp-up, and any updates on planned shutdowns, as these factors will significantly influence near-term financial performance and debt levels, which are projected to stabilize in FY26 before decreasing.