Pros and Cons of Investing in JSW Steel

The stock of JSW Steel along with other steel stocks are in the news.

The big reason for the jump in the stock today (+4.9%) was the government's decision to impose tariffs on steel products.

And before the recent correction, the stock has been trending up for more than two years.

JSW Steel Share Price - 3 Years

But what does the future hold for the stock?

In this editorial, we will discuss the pros and cons of investing in the stock of JSW Steel.

But first...

Latest Development: Import Tariffs on Steel Products

Steel stocks rose today after the Indian government announced a 3-year import tariff on steel products. These tariffs will be safeguard duties amounting to 12% in the first year, 11.5% in the second year, and 11% in the third year.

The products covered are non-alloy and alloy flat steel. Speciality steels have not been included in the tariff. The countries on which the tariff has been imposed are Vietnam, China, and Nepal.

Import tariffs help protect pricing of domestic steel producers by preventing cheaper imports.

Pros

Well Established Position and Good Growth Prospects

The company has a well-established position in the Indian steel industry.

It manufactures and sells a wide range of steel products, including flat and long steel products at it facilities across India. The company sells its products under different brand names and caters to various industries.

Its diversified portfolio categories are hot-rolled, cold-rolled, galvanneal, galvanised/galvalume, pre-painted, tinplate, electrical steel, TMT bar, wire rod, special steel bar, and round & bloom.

It has grown steadily over the years and is now in an expansion phase for the next leg of growth. JSW Steel aims to almost double its production capacity to 50 MTPA by 2030.

The company is planning a major investment of Rs 500-600 bn to set up a 10 million tonnes per annum green steel plant in Salav village, Raigad district, Maharashtra.

This plant is specifically designed to serve the European market, which is preparing to implement the Carbon Border Adjustment Mechanism (CBAM).

The project is part of JSW's brownfield expansion, expected to be completed over 3-4 years.

Cons

Recent Performance

The company has struggled to deliver on growth over the last two years. The topline and bottomline have both been essentially flat since FY23.

Although the company's cash flows have been strong, the lack of growth has not impressed the stock market. The company's return ratios have also been negatively impacted with the ROE and ROCE both in single digits in FY23 and FY25. A small recovery in FY24 did not sustain.

To add to this, the company is in investment mode which has resulted in debt levels going up. The company's debt to equity ratio has been historically high and stood at 1 in FY25, up from 0.9 in FY24.

Should You Consider the Stock of JSW Steel?

Founded in 1982, it has expanded through mergers and acquisitions, including Ispat Steel and Bhushan Power & Steel. It operates in India, the US, and Italy.

There's been a rise in demand for specialty steel across industries like renewable power, automobiles, and white goods. India's reliance on steel imports has prompted JSW Steel to scale up its value-added product capacities to drive import substitution and achieve self-reliance.

JSW plans to increase the share of high-margin, value-added products in its product mix to protect margins during steel price volatility.

The company consistently invests in the latest technologies to enhance its production processes and ensure superior quality products.

However, a big concern is the company's vulnerability to global commodity prices. Prices of finished steel and the raw materials to produce it, are closely linked to global economic conditions.

A slowdown in infrastructure spending, construction, or manufacturing can lead to sharp drop in earnings and stock prices.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stocks when conducting due diligence before making any investment decision.

For more details, you can have a look at the JSW Steel fact sheet and quarterly results.

For a sector overview, read our steel sector report.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy investing.