Brokerages cut target prices citing pressure on margins


The brokerage firms maintained their ratings, but lowered the target price for JSW Steel Ltd. after the steelmaker posted earnings in line with estimates for the quarter ended in September.

While most analysts see pressure on margins due to higher coking coal prices, they expect further price hikes, lower iron ore prices and sustained performance by subsidiaries abroad to mitigate this effect.

The shares of JSW Steel Ltd. fell as low as 1.86% in morning trading before cutting some losses to trade down 1.28% from Nifty’s 0.6% gain at 10:15 am.

Of the 33 analysts who follow the company, 19 recommend “buy”, eight suggest “keep” and six have a “sell” rating. The analyst consensus price tracked by Bloomberg implies an increase of 18.4%.

Here’s what the brokerages had to say about JSW Steel’s second quarter earnings:

Swiss credit

  • Maintain the “underperformance” rating with a target price of Rs 550, down 18.3%.

  • The second quarter of FY22 is live, as global operations compensate for stand-alone failures.

  • The costs of coking coal are of concern.

  • Expect third quarter costs to be $ 95-100 per tonne higher.

  • JSW currently has two months of inventory.

  • JSW is considering charging an energy supplement if coking coal costs remain high.

  • JSW could raise prices again in November.

  • JSW Steel to consolidate Bhushan Power & Steel Ltd. in the third trimester.

  • Expansion of the Dolvi plan by 5 million tonnes to add 1.5 MT capacity during FY22.

JP Morgan

  • Maintain the “neutral” rating; keeps the target price at Rs 730.

  • The company reports a strong counter-consensus for India and overseas affiliates.

  • Major foreign submarines (US and Europe) posted further quarter-over-quarter improvement.

  • The fall in the price of iron ore has not yet been passed on to Indian operations.

  • Coking coal costs are expected to increase by $ 100 per tonne in the third quarter.

  • Expect steel price increases in November and December and iron ore costs to drop in the second half of the year.

  • October steel prices were increased by Rs 1,500 per tonne.

  • The margins of Indian steel companies have peaked.

  • See upside risk on estimates.

Nomura

  • Maintain the “neutral” rating, reduce the target price to Rs 727 against Rs 747.

  • Coking coal prices have increased sharply.

  • Domestic iron prices have yet to experience significant declines likely.

  • Recovery in foreign operations and potential price hike in November.

  • In the long run, cost savings and capacity increases underpin profitable growth.

Jefferies

  • Maintain the “buy” rating; reduce the target price to Rs 800 from Rs 785.

  • The company’s second-quarter EBITDA was stable quarter-over-quarter (2.5x year-on-year) and in line with Jefferies’ estimates.

  • Autonomous EBITDA per tonne fell 13% quarter on quarter, but was still the second highest on record.

  • The real estate sector and energy concerns have clouded the outlook for steel demand in China.

  • China’s production cuts and easing policy should support market balance and prices.

  • Rising coking coal prices will hurt in the second half of the year.

  • See the margins remaining above previous years.

Previous KeyBank Mortgage Business Heads For Strong Year End | Local company
Next How much debt does Gen Z have on average