Should you invest in India’s biggest steel maker JSW Steel?
The scrip traded 4.35% higher at Rs 464 at around 10.25 am (IST), while the benchmark BSE Sensex traded nearly 780 points, or 1.61%, higher at 49,803 at around the same time.
JSW Steel advanced over 4% in Tuesday’s morning trade after the company on Friday said it has paid Rs 19,350 crore to the financial creditors of Bhushan Power & Steel Ltd towards implementation of the resolution plan for acquiring the company.
With the move, JSW Steel has closed the acquisition of Bhushan Power & Steel Ltd (BPSL) and this makes the company largest steel maker in the country.
“Pursuant to the implementation of resolution plan, the inter-alia included payment of Rs 19,350 crore to the financial creditors of BPSL and merger of SPV with BPSL, PSL (Piombino Steel Ltd) holds 100 per cent equity shares in BPSL,” JSW Steel said in a filing to BSE.
Brokerages retained their bullish view on JSW Steel after the development. Global financial services Investec upgraded the steel major to ‘Buy’ with revised price target of Rs 555.
The scrip traded 4.35% higher at Rs 464 at around 10.25 am (IST), while the benchmark BSE Sensex traded nearly 780 points, or 1.61%, higher at 49,803 at around the same time.
“Assuming adjusted enterprise value, estimated EBITDA, potential tax synergies and growth optionality, we find this an attractive win. We highlight adverse pending appeals could reverse the transaction and economic value via BPSL will outweigh dilution related risks,” Investec said, adding its target price doesn’t reflect tax synergy gains, growth optionality or incremental accrual of cash on books.
JSW Steel further said a sum of Rs 8,614 crore was arranged in Piombino Steel Ltd, a wholly-owned subsidiary of the company, through a mix of equity, optionally convertible instruments, issued to the company and JSW Shipping & Logistics, and debt.
The PSL funds included a total infusion of Rs 5,087 crore by the company in the form of equity and optionally convertible instruments, the company said.
JSW Group Chairman Sajjan Jindal in a tweet said, “Very proud that with the acquisition of Bhushan Power and Steel, we have made our entry in Odisha-East India and are now the country’s leading Steel Maker. On behalf of all @TheJSWGroup I am happy to welcome the employees of #BPSL to the JSW Family!.”
Domestic brokerage firm Sharekhan also holds a positive view on JSW Steel with a price target of Rs 500. “We have increased our FY2021-FY2023 earnings estimate to factor in higher EBITDA margin (as we expect steel margin upcycle to sustain on tight supply) and higher volume assumption as Dolvi expansion is nearing completion and steel demand is expected to remain strong. We expect JSW Steel’s earnings to register a 15% CAGR over FY2021E-FY2023E with improvement in RoE to 16.8% (versus 10.5% in FY2020).”