JSW STEEL
Reco price: Rs 849
Current market price: Rs 896.50
Target price: Rs 980
Upside: 9.3%
Brokerage: Ambit Capital
JSW Steel is expected to witness strong growth momentum over the next few years driven by the new 3 million tonne per annum (mtpa) crude steel capacity commissioned in April 2009 and 3.2 mtpa expansion expected by March 2011. Hence, its turnover is expected to grow by 26 per cent annually during FY09-12. Realisation is also expected to improve by 2 per cent due to better mix as the share of semi-products will come down from 25 per cent of total sales in FY10 to 10 per cent in FY11. Also, margins will improve marginally as a result of captive iron ore mines.
Thus, EBITDA would grow faster by 35 per cent over FY09-12. During the same period, adjusted net profits should register a healthy 37 per cent growth annually. Regarding its debt-equity, the brokerage says that JSW Steel is in negotiations with its lenders to obtain waivers for past covenant defaults and relax terms linked to its loans. Some lenders have already agreed. It expects the net debt- equity to fall from 2 times in FY09 to 1.8 times in FY11. The brokerage has a target price of Rs 980, which is based on forward EV/EBITDA multiple of 6 times.
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