JSW Steel Implements Resolution Plan For Bhushan Power

Brokerages Takeaway

Brokerages see this acquisition as an attractive and inexpensive win, with temporary impact on the credit metric of the company.

Investec Securities

• Upgrades JSW Steel to ‘buy’ from ‘hold’; target price at Rs 555 apiece.

• Based on headline number, JSW Steel should pay an enterprise value of Rs 19,350 crore.

• Finds Bhushan Power an attractive win given the EV, potential tax synergies and growth optionality.

• Conservative Ebitda of about Rs 3,000 crore, implies inexpensive valuations at 4.8-5.1x EV/Ebitda.

• Highlights that adverse pending appeals could reverse the taxation.

• Economic value via Bhushan Power to outweigh dilution-related risks.

• Target price doesn’t reflect tax synergy gains, growth optionality or incremental accrual of cash on books.

Nomura

• Upgrades JSW Steel to ‘buy’ from ‘neutral’; raises target price to Rs 530 apiece from Rs 404.

• Upgrades to ‘buy’ on improving spread outlook.

• Rs 19,350-crore cost of Bhushan Power to have only a temporary impact on management’s target credit metrics.

• Based on expectation of spreads, credit metrics are likely to be maintained within target ranges by end-FY22.