Buy JSW Steel stock with a target price of Rs 535, maintain stop-loss at Rs 495, says Motilal Oswal

JSW Steel share price today is Rs 507.25 and it is trading flat even as wider markets are negative. JSW Steel has moved from Rs 444 to Rs 508 in the last 1 week. In a report, Motilal Oswal has raised its FY22-23E EPS for JSW Steel by 42-48% to factor in improved Steel price outlook and accretion from the acquired assets of Bhushan Power and Steel (BPSL). Motilal Oswal has reiterated a Buy on JSW Steel as the best play on volume growth in the Indian Steel sector. Over FY21-23E, Motilal Oswal estimates 16% volume CAGR (excluding BPSL), which should drive 22%/37% EBITDA/EPS CAGR.

Motilal Oswal has estimated that JSW Steel net debt is expected to fall by 26% over FY21-23E to Rs 483 bn (1.7x FY23E EBITDA) despite an ongoing capex program to expand its upstream and downstream Steel capacities. The report also indicates that JSW Steel is believed to have increased HRC-CRC prices by Rs 4000 – Rs 4500/tonne with current HRC/CRC price at Rs 58000/Rs69000.

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Technical Analysis on JSW Steel:

Chandan Taparia, Derivative & Technical Analyst, Motilal Oswal Financial Services says that JSW Steel has seen a Price volume breakout on daily and weekly frame. After the consolidation breakout to new price territory, it is building strength for a further upmove, he added. Stock has seen 98.4% rollover from the previous series with increasing PCR OI. He recommends buying on JSW Steel with a target of Rs 535 and stop loss of Rs 495, he concluded.

Bhushan Power and Steel Acquisition:

Motilal Oswal has said that Bhushan Power and Steel acquisition has been completed at an opportune time as the Steel cycle is looking strong, which should help earn a post-tax RoCE of 13% on the investment. Based on the acquisition cost of Rs 193.5 bn, Motilal Oswal has estimated a reasonable 6.4x implied FY22E EV/EBITDA.