Why JSW Steel's strong Q1 may not be the biggest positive

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Shares of JSW Steel have gained about 4% after its June quarter (Q1FY27) results, with Ebitda from Indian operations rising 32% year-on-year to ₹9,100 crore. Profitability was supported by an 11% increase in realizations and higher volumes, even as coking coal prices rose and the West Asia conflict led to about $20 per tonne additional costs.

Revenue increased 15% to ₹42,894 crore, while Ebitda per tonne, net of forex adjustments, rose 26% to ₹15,110. The prior-period numbers exclude Bhushan Power and Steel, which was transferred to JSW Sambalpur Steel Ltd (JSSL), an equal joint venture with JFE Steel Corp., in Q4FY26.

However, the quarter's biggest positive was the improvement in JSW Steel's balance sheet. The company received ₹7,870 crore from JFE in Q1 as the second tranche of its investment in JSSL. In Q4FY26, JSW had transferred ₹21,000 crore of debt to JSSL, corresponding to the assets housed in the joint venture.

Consequently, consolidated net debt-to-Ebitda improved to 1.46x at the end of June from 1.81x in March and 2.91x in December. Earlier this month, Fitch upgraded JSW Steel's long-term issuer rating to BB+ from BB.

The stronger balance sheet leaves JSW Steel well placed to execute its expansion plans. The company aims to increase steelmaking capacity by nearly 50% to 54.8 million tonnes per annum (mtpa) by FY30 from 38 mtpa currently, involving total investments of ₹1.3 trillion.

“Strong deleveraging trajectory, realisation-led margin recovery at JSW Vijayanagar Metallics Ltd (JVML), and a visible multi-year capacity pipeline augur well for the earnings trajectory,” said JM Financial Institutional Securities. JVML accounted for 15% of consolidated revenue and 19% of Ebitda in Q1.

JSW Steel is also investing in backward integration through mining projects and expanding its higher value-added steel products portfolio. It expects FY27 capex of ₹22,000-24,000 crore, of which about ₹5,000 crore has already been spent in Q1, compared with ₹16,000 crore in FY26.

Still, near-term margins may face pressure. Management has guided for lower realizations in Q2 because of the seasonal monsoon-led demand slowdown, and $12-15 per tonne increase in coking coal costs. This would partly be offset by higher volumes following the start of the upgraded Blast Furnace-3 at Vijayanagar, Karnataka, which adds 1.5 mtpa of capacity.

JSW Steel trades at an enterprise value of 10.3x FY27 estimated Ebitda, well above its long-term average of 8.2x. Here on, investors will closely track volume pick-up and the price trends after monsoon.

Ashish Agrawal has been associated with Mint for the last two years and writes for the ‘Mark to Market’ column. He has done his master’s in business administration from IIM Calcutta, specialising in finance and operations. His previous experience includes stints with The Economic Times and JSW Steel, among others. He has over 15 years of experience in stock market research, analysis and writing, and has covered sectors such as metals and mining, oil and gas, power (including renewables), capital goods (including electronics).<br><br>Ashish is passionate about infrastructure sectors, which, he believes, are the strands that lift the entire economy. He was invited for a visit to France, by the Government of France, in recognition of his coverage of issues related to nuclear power. Besides, Ashish has considerable understanding of the Indian and global economy and is the author of a book, “Indian Economy & Business: Overview of Recent Trends & Events”. As a part of the enterprise risk management team at JSW Steel, he had conceptualised, proposed and developed a Risk Index for the enterprise to quantify and monitor all the risk factors, and take mitigating action as needed.

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