The company is expected to market two new Brownfield expansions that take the total capacity to 37 MTPA in fiscal year 26 and then increase to 51 MTPA for fiscal year 31-32 with a capacity of 10 percent of CAGR. | Photo credit: K_ANANTHAN
The JSW steel stock corrected 5.8 percent in the day in negative news. Considering that Bhushan Power and Steel (BPSL) represents 12 percent or consolidated steel sales of 9mfy25: no more decreases can be ruled out.
BPSL had an installed capacity of 2.7 MTPA (millions of tons per year) at the time of the acquisition of JSW Steel in 2021, which quickly increased to 3.5 MTPA at the end of fiscal year 2014. JSW Steel then completed the addition of another capacity of 1 mtpa by Q3Fy25. BPSL reported an output capacity or 0.96 MTPA in steel production in Q3Fy25 or about 4 MTPa annualized. At current levels, BPSL represents 10-12 percent of consolidated income, Ebitda and Pat.
Applying EV/EBITDA of JSW Steel or 13 times in the Q3Fy25 output EBITDA, BPSL must represent 12 percent of the value of the consolidated entity. But the impact could be more given the cloud of uncertainty now in the order of the Supreme Court will be implemented. At the present time, steel achievements are at their lowest, post-covid point and on the verge of recovery with the imposition of the import tariff on steel products. This further harms the assessment in case of BPSL settlement.
Expansion perspective
JSW Steel trades 13 times EV/EBITDA quote in a premium assessment range to the industry 6-8 times. This is due to the strong plans to expand the capacity of the company. The company is expected to market two new Brownfield expansions that take the total capacity to 37 MTPA in fiscal year 26 and then increase to 51 MTPA for fiscal year 31-32 with a capacity of 10 percent of CAGR. And this expansion plan includes an expansion of 5 MTPA Brownfield in BPSL (rather than double the current levels), which is a crucial part of the expansion plan.
Therefore, the recent order is a cantilever in the growth objectives of JSW Steel, which is compatible with the multiple of Highher’s assessment. The previous resolution allowed JSW Steel to recover the ₹ 19,350 million rupees paid to acquire the asset, but this will not fill the vacuum in case of liquidation. In addition, the cost incurred in the expansion, simplifying the plant to modern standards and developed commercial infrastructure are other costs that cannot be recovered in case of a negative result.
Since these investors must expect more clarity before receiving a call on shares.
Posted on May 2, 2025
