Brokerage house CLSA said there is a case for expansion in JSW Steel Ltd.'s valuation multiple higher as it sees demand pick up in coming months.
CLSA forecasts a 19 percent compounded annual growth rate (CAGR) for JSW Steel's earnings per share (EPS) over the next three years. It also expects the steel company's valuations to expand on the back of better pricing driven by anti-dumping duties.
Moreover, the upcoming Dolvi expansion will also benefit JSW Steel, CLSA said.
CLSA expects higher prices in the future to drive JSW Steel's margins. Lagged benefit of a decline in input costs and operating leverage benefit from higher volumes in the rest of the current financial year will also improve the steel manufacturer's margins in the future, the brokerage said.
The Sajjan Jindal-led steel maker managed to beat street estimates despite a 42 percent drop in net profit for the April-June period, as input costs rose and its customers cut stock ahead of the implementation of the Goods and Services Tax (GST).
Industry wide de-stocking by customers, especially for long products and trade sales, weighed on domestic sales volumes, the company said in its media statement. Besides that, it said iron ore prices remained at elevated levels in India, putting pressure on costs.
Broking firm Credit Suisse said it is “less concerned” about any imminent price fall on rising export prices and domestic prices still trading at a discount.
JSW clocked an export growth rate of 23 percent for June quarter, therefore, Credit Suisse said the steel maker is likely to focus more on the domestic market where prices could go up.
Both CLSA and Credit Suisse maintained their positive rating on the stock with a price target of Rs 300 and Rs 265.
Also Read: JSW Steel's Lower Production Not A Setback, Says Group CFO
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