7 hours ago
JSW Steel Ltd. shares are in focus on Monday, May 5, after brokerages turned bearish on the stock following the Supreme Court terming its six-year old Bhushan Power and Steel resolution plan as "illegal".
Brokerage firm CLSA has an "underperform" call on the stock with a price target of ₹825 per share, implying a downside of nearly 15% from Friday's close. The stock ended nearly 6% lower on Friday at ₹970 per share.
Nuvama has a "reduce" rating on the stock with a price target of ₹977 apiece, while Equirus has two scenario analysis, where it has projected a downside of up to 13% for the stock.
Supreme Court rejects resolution plan
In 2021, JSW Steel acquired a 49% stake in Bhushan Power and Steel (BPSL) via the insolvency and bankruptcy process, getting a 2.75 MTPA steel-making capacity in Odisha. By October 2021, JSW Steel increased its stake to 83%.
The Supreme Court cited grounds for striking down JSW Steel's plan and directed the liquidation of Bhushan Power and Steel.
Supreme Court held that JSW Steel should have completed the takeover only via equity instead of with a mix of equity and optionally convertible debentures. The top court also cited that JSW Steel failed to complete the resolution plan within the prescribed timeline.
CLSA
CLSA said JSW Steel is eligible to get back the initial investment it made in BPSL but recovering the initial investment could also be a long, drawn-out process. Also, uncertainty regarding the capex incurred and EBITDA generated in this period remains, it said. The brokerage said it has calculated a 5-9% impact on the company's valuation from its April 30 close. With the stock down 6% on May 2, part of the impact has played out, CLSA said.
Nuvama
Nuvama believes JSW Steel will soon file a review petition against the Supreme Court order. It also believes the 6% decline in the stock price on May 2 more than factors in the mentioned negative news. In the near term, any volume hit, if it happens, will boost domestic steel prices, Nuvama added.
Equirus
Equirus said it expects both, JSW Steel and the lenders, to file review petitions to halt the liquidation of BPSL. This could lead to a prolonged legal process and a continued overhang on both, JSW Steel and the lenders, until a final resolution has reached.
The brokerage analysed two case scenarios for the company:
The first is a bear case, where Equirus said JSW Steel must comply with the Supreme Court order and liquidate the assets. There is no clarity on recovering the ₹19,400 crore that has already been paid. In such a scenario, JSW Steel's price target falls to ₹841 from the current ₹980, according to Equirus.
As per a base case downside scenario, JSW Steel would liquidate BPSL but recover only the ₹19,400 crore it initially invested. In this case, the one-year forward price target would drop to ₹922 from the current ₹980 per share. This would be downside of 5% from its previous closing price.
Of the 35 analysts that have coverage on the stock, 20 have a "buy" rating, five have a "hold" rating and 10 have a "sell" rating.
JSW Steel shares have been trading with losses for three consecutive days. The stock has gained 7.13% this year, so far.
Also Read: Indian banks stare at over ₹31,000 cr exposure in Bhushan Power liquidation blow
