On Monday, CLSA adjusted its price target for JSW Steel Ltd (JSTL:IN) shares, increasing it to INR780 from the previous INR765, while maintaining an Underperform rating on the stock. The revision follows the company's first-quarter consolidated EBITDA, which at Rs55 billion, met market estimates.
This financial performance was supported by enhanced profitability in both JSW Steel's standalone operations and its subsidiary Bhushan Steel, attributed to an improved sales mix and reduced costs.
Looking ahead to the second quarter, CLSA anticipates an improvement in spreads due to declining costs for iron ore and coking coal. This potential gain may be tempered by a softening in steel prices.
The firm notes that despite these cost advantages, the overall pricing environment for steel is expected to remain stable rather than increase significantly. This outlook is based on increased production levels in China and new capacity coming online in India, which could keep steel prices within a narrow range.
The stock's current valuation is also a concern for CLSA. With JSW Steel's shares trading at 1.5 standard deviations above the median, the firm views the risk-reward balance as unfavorable. This assessment suggests that the potential for stock price growth may not be sufficient to outweigh the risks associated with the investment at its current market price.
In their statement, CLSA emphasized the factors limiting the potential for margin expansion, "With the stock trading 1.5 standard deviations above median, we see risk-reward as unfavorable. We maintain Underperform with revised target price of Rs780 (from Rs765)."
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