Edelweiss Financial has a buy call on JSW Steel with a target price at Rs 433, implying a 45 percent potential upside from Thursday's closing levels. The stock gained more than half a percent in morning on Friday.
The research house visited company's Vijayanagar plant and reaffirmed its belief in the value the stock offers.
This plant is the largest single location steel producing facility in India, accounting for 12 million tonne per annum (mtpa) of company's overall capacity of 18mtpa.
Edelweiss expects EBITDA per tonne to remain in excess of Rs 11,000.
"Economies of scale are driving fixed-cost efficiencies and company's upcoming 8 mtpa pellet plant would improve feed mix to blast furnace," the brokerage house said.
While maintaining buy call with a target price at Rs 366, Motilal Oswal, which also visited the same plant, said JSW Steel will incur capex of Rs 44,400 crore to increase capacity by 6.7 mtpa to around 25 mtpa over FY18-21.
The company has purchased a minority stake in 1.5 mtpa Monnet Ispat, which will eventually be merged with the company. "Total estimated cost is likely to be Rs 4,000 crore," the research house said.
Thus, at total additional investment of Rs 48,500 crore, the capacity will increase by 8.2 million tonne or by 45 percent to 26.2mtpa by end-FY21, it added.
The specific capex up to hot rolling stage is around $700 per tonne only, which includes various cost-saving projects. This is best benchmark in the industry, it feels.
JSW Steel has also acquired capacities in countries like the US and Italy, which are net importer of steel and net exporter of steel scrap. The acquisition of Acero has come at a very low cost.
"A turnaround of this asset can create significant value for the company," said Motilal Oswal. It feels the stock deserves higher EV/EBITDA of 7x for lower volatility in earnings, and regular and consistent value-accretive growth.
At 10:22 hours IST, the stock was quoting at Rs 299.90, up Rs 1.85, or 0.62 percent on the BSE.
It rallied 23 percent in last one year but in last three months, it corrected more than 26 percent.
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Source: Moneycontrol
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