How Supreme Court order can impact JSW Steel’s shares

The company is expected to commercialise two new brownfield expansions taking total capacity to 37 MTPA in FY26 and later increasing to 51 MTPA by FY31-32 at 10 per cent CAGR in capacity. 
| Photo Credit:
K_Ananthan

JSW Steel stock corrected by 5.8 per cent in the day on the negative news. Considering that Bhushan power and Steel (BPSL) accounts for 12 per cent of 9MFY25 consolidated steel sales – further declines cannot be ruled out yet.

BPSL had an installed capacity of 2.7 MTPA (million tons per annum) at the time of the acquisition by JSW Steel in 2021, which quickly ramped to 3.5 MTPA by end FY24. JSW Steel then completed addition of another 1 MTPA capacity by Q3FY25. BPSL reported an exit capacity of 0.96 MTPA in steel production in Q3FY25 or close to 4 MTPA annualised. At the current levels, BPSL accounts for 10-12 per cent of consolidated revenues, EBITDA and PAT.

Applying JSW Steel’s EV/EBITDA of 13 times on the Q3FY25 exit EBITDA, BPSL should account for 12 per cent of the value of the consolidated entity. But impact could be more given the cloud of uncertainty now on how the Supreme Court order is going to be implemented. At the current moment, steel realisations are at their lowest, post-Covid, and on the verge of recovery with the imposition of import duty on steel products. This further hurts the valuation in case of BPSL liquidation.

Expansion outlook

JSW Steel trades at 13 times EV/EBITDA trades at a premium to industry valuation range of 6-8 times. This is owing to the strong capacity expansion plans of the company. The company is expected to commercialise two new brownfield expansions taking total capacity to 37 MTPA in FY26 and later increasing to 51 MTPA by FY31-32 at 10 per cent CAGR in capacity. And this expansion plan includes a 5 MTPA brownfield expansion at BPSL (more than doubling from current levels) which is a crucial part of the expansion plan.

So the recent order is an overhang on the growth targets of JSW Steel, which is supporting the higher valuation multiple. The earlier resolution did allow JSW Steel to recoup the ₹19,350 crore paid to acquire the asset, but this will not fill the void in case of a liquidation. Also the cost incurred on expansion, streamlining the plant to modern standards and commercial infrastructure developed are other costs that may not be recovered in the event of a negative outcome.

Given these investors need to wait for more clarity before taking a call on the stock.

Published on May 2, 2025