Brokerages’ Take On JSW Steel’s Q1 Performance, Investment In Paint Business

Analysts cheered JSW Steel Ltd.’s above-estimated operating performance in the first quarter, driven by improved realisations on higher prices of the alloy, but remained cautious over the mill’s investment in paints business.

JSW Steel saw its profit and revenue jump 41% and 7%, respectively, over the preceding quarter in the three months ended June. Its operating income surged more than 21%, while margin expanded during the period.

Separately, the steelmaker’s board of directors approved to make a strategic investment of about Rs 750 crore in JSW Paints Pvt. Ltd. in three-four tranches, according to an exchange filing. Turnover of JSW Paints, it said, was Rs 430.48 crore for the financial year ended March 2021.

In the first tranche, the company shall invest Rs 299.9 crore and subscribe to equity shares equivalent to about 7.5% of the issued and paid-up equity capital of JSW Paints, and 6.88% on a fully diluted basis by end of second quarter of FY2021-22, the filing said. It shall complete the remaining tranches during the period FY2022-23 to FY2024-25.

The aggregate percentage of shareholding to be acquired by the steelmaker in JSW Paints across all tranches shall be calculated based on the valuation to be undertaken at the relevant time, in accordance with the Companies Act, 2013, and by one of the big four accounting firms, the filing said.

Here’s what brokerages have to say about JSW Steel’s first-quarter performance and investment in paints business…

JP Morgan

  • Maintains ‘neutral’ rating, with a target price of Rs 700 apiece.

  • JSW’s Ebitda/PAT were a beat against elevated Q1 forecasts.

  • Surprised by company’s investments in group entities.

  • Investments are not large in the context of JSW’s cash flows but surprising.

  • Q2 should see margin hit given higher coking coal and lower average selling price.


  • Maintains ‘neutral’ rating but raises target price to Rs 747 from Rs 697.

  • Strong Q1FY22 results, supported by a sharp rise in steel prices.

  • Headwinds emerge from rising raw material prices and lower exports from Q2 FY22.

  • Does not view these elevated spread levels to be sustainable.

Investec Securities

  • Retains ‘buy’ rating, with a target price of Rs 860 apiece.

  • JSW Steel recorded operational beat on better pricing/spreads.

  • Net debt increased on back of working capital surge.

  • Management remains confident on export order book, volume guidance, price trend.

  • Incremental investments in JSW Paints, a non-core area, is a concern.

Kotak Institutional Securities

  • Maintains ‘buy’ rating; hikes fair value to Rs 665 from Rs 640 apiece.

  • Fair value increases at 6.5X EV/Ebitda September 2023E.

  • JSW Steel’s Q1 FY22 Ebitda beat estimates led by higher steel realisation.

  • Increasing raw material prices suggest margins have peaked.

  • JSW Steel’s 5-MTPA expansion is on track to commission in Q2 FY22E.

  • The company’s decision to invest Rs 750 crore in the group’s paint business could have been structured better to avoid governance concerns.

  • Increases Ebitda by 20%/4% for FY2022/23E on higher steel prices.

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