On Thursday, Nomura/Instinet has initiated coverage on JSW Steel Ltd (JSTL:IN) stock with a Buy rating and a price target of INR1,220. The firm's analysis points to several factors that underpin this positive outlook. They anticipate that JSW Steel's capacity expansion plans, which include adding 7 million tonnes by the 2028 fiscal year, will align with a cyclical recovery in the industry. This represents a compound annual growth rate (CAGR) of 5% from the 2024 to 2028 fiscal years.
Further bolstering JSW Steel's position is its strategy for raw material backward integration. The company is aiming to achieve 50% self-reliance in iron ore, a move expected to enhance its competitive edge. According to Nomura, this approach will leave JSW Steel better positioned than its integrated peers, particularly as domestic iron ore prices are projected to stay below the import parity prices.
Nomura's earnings before interest, taxes, depreciation, and amortization (EBITDA) forecast for JSW Steel for the 2025 fiscal year is 4% below the Bloomberg consensus, attributing this to a near-term commodity price deflation. However, the outlook for the 2026 fiscal year is more optimistic, with an estimate 16% above consensus. This optimism is driven by stronger domestic demand and improved export spreads for hot rolled coil (HRC) to China.
The price target of INR1,220 is derived from applying a 7.6x one-year forward enterprise value to EBITDA multiple on the firm's 2026 fiscal year estimates. This valuation is higher than the historical mid-cycle multiple of 7.0x. Despite the positive rating, Nomura also cautions of potential risks, including lower spreads, potential further delays in the commissioning of the Dolvi plant, and possible demand disruptions.
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