JSW Steel, ONGC: Brokerages downgrade stocks post q4 results—Here is why

Shares of JSW Steel and Oil and Natural Gas Corporation (ONGC) declined up to three per cent after the Iron & steel and oil exploration companies came up with their results for the quarter ended March 31, 2022. The results of the two companies were in contrast as JSW Steel reported a 20 per cent decline in its consolidated net profit, while state-owned ONGC reported a record net profit, becoming India's second most profitable company behind Reliance Industries Ltd, said exchange filings of these companies.  

Meanwhile, brokerages largely degraded JSW Steel, while they held a mixed stance on ONGC. Here is what they recommed 

JSW Steel 

The iron and steel company witnessed a 20 per cent decline in its consolidated net profit to Rs 3,343 crore for the March 2022 quarter, as against Rs 4,191 crore net profit, it clocked in January-March 2020-21. 

Over weak quarter and gloomy outlook, Kotak Securities maintained a Sell rating with a revised fair value of Rs 460 (previously Rs475). It was of the view that JSTL’s 4QFY22 adjusted EBITDA was much below its estimates, mainly led by weaker realizations. "Management guided for a correction in steel prices and a surge in coking coal cost suggesting a further correction in margins," it said.  

ICICI Securities maintained a Reduce rating and slashed target price to Rs 495 per share from Rs 550 earlier.  It was of the view that the company reported lower-than-expected Q4FY22 earnings due to QoQ drop in reported realisation and headwinds because of coking coal costs.  

Weak earnings are likely to affect growth capex, increase debt and lower sector valuation, said Sharekhan on JSW Steel. "Thus, we downgrade JSW Steel to Hold (from Buy earlier) with a revised PT of Rs. 590 (reflects sharp cut in EBITDA). Potential merger of JISPL would also result in equity dilution," said the brokerage 

Meanwhile global brokerage firms were also bearish on JSW Steel post weak q4 results.  CLSA maintained a Sell rating on the metal stock with a target price of Rs 500 per share. It though believes that the results were somewhere on expected lines, uncertainty about the company’s performance may continue.  

JP Morgan had a Neutral rating with a revised target price to Rs 610 per share from Rs 730 per share, while Credit Suisse maintained an underperform rating with Rs 550 per share target.  

ONGC 

The Oil and Natural Gas Corporation (ONGC) reported a record net profit of Rs 40,305 crore in the fiscal year ended March 31 on the back of the best-ever price it earned on crude oil it produces. It also becoming India's second most profitable company behind Reliance Industries Ltd. 

The net profit for the fiscal FY22 (April 2021 to March 2022) soared 258 per cent to Rs 40,305.74 crore from Rs 11,246.44 crore in the previous financial year, said ONGC in an exchange filing. 

"It got an average of USD 76.62 for every barrel of crude oil produced and sold in the fiscal as against USD 42.78 per barrel net realisation in the previous year. This is the best ever price that ONGC got as international oil prices surged from late 2021 and spiked to a near 14-year high of USD 139 per barrel after Russia invaded Ukraine," said the filing.  

Meanwhile, brokerage firm Yes Securities maintained a Reduce rating on ONGC, with a target price of Rs 150. It said a rally in global crude oil and natural gas prices is key driving factor behind ONGC’s profitability and any moderation thereof would have a concomitant impact on its operating cashflows.  

"We believe that inspite of current high crude oil price environment, in the longer run, alleviation of geopolitical tension, restoration of demand-supply balance and focus on sustainable energy would likely put a lid on crude oil rally," it said.  

Among the global brokerages, JP Morgan maintained an Overweight stance with revised target price to Rs 210 from Rs 250 per share, Nomura had a Neutral rating with Rs 185 TP.  

Citi maintained a Sell with a target price of Rs 155 as it maintained that production trends remain disappointing.