The investment thesis rests on three pillars: a game-changing JV that slashes debt, margin recovery backed by safeguard duties, and an aggressive capacity expansion roadmap to 50 MTPA.
The JFE Steel Joint Venture: What's Actually Happening
On December 3rd, JSW Steel announced a strategic restructuring of its Bhushan Power and Steel Limited (BPSL) unit. Here's how the deal works:
The Structure:
BPSL (a step-down subsidiary) will be transferred to JSW Sambalpur via a slump sale for ₹244.8 billion cash
JFE Steel Japan will invest ₹157.5 billion in two tranches for a 50% stake in the new 50:50 JV
₹320 billion in cash consideration (₹244 billion by March 2026, balance by September 2026)
Consolidated debt reduction of ~₹350 billion (including ₹50 billion of BPSL's debt removed from books)
Access to JFE's advanced technology for high-value steel production
Freedom to focus on the 50 MTPA capacity expansion target by FY31
The BPSL Backstory: JSW Steel acquired BPSL through the IBC (insolvency) process in 2021 for ₹193.5 billion. At the time, it was a distressed asset with 2.75 MTPA capacity. JSW turned it around, expanded capacity to 4.5 MTPA, and in FY25 BPSL generated:
Revenue: ₹214.4 billion
EBITDA: ₹22.1 billion
Net Profit: ₹2.6 billion
At ₹530 billion EV against FY28E EBITDA of ₹45 billion for BPSL, the transaction values the unit at approximately 11.8x forward EBITDA. That's a solid exit valuation for JSW Steel.
One Catch: The restructuring involves issuing shares to JSW Shipping (a promoter entity) to buy out its 17.35% stake in Piombino Steel Ltd (which holds BPSL). This will cause ~2% equity dilution in JSW Steel. However, promoter holding will actually increase from 45.3% to 46.74% post-transaction.
The Capacity Expansion Roadmap
JSW Steel isn't just deleveraging, it's aggressively expanding. Here's the trajectory:
Timeline
India Capacity (MTPA)
Key Additions
Current
34.2
Existing operations
FY26E
35.7
Vijayanagar +2.0, Salem +0.2
Sep'27E
43.4
Dolvi +5.0, BPSL +0.5
FY31E Target
50.0
Phase-II expansion +8.1
Note: The company also has 1.5 MTPA capacity in the US, bringing total capacity to 51.5 MTPA by FY31.
About 96% of capex through FY28 is earmarked for India operations, split across:
Carried forward projects: 77%
Dolvi (sinter plant, CPP, etc.): 5%
Mining & cost savings projects: 7%
Value-added products facilities: 4%
Sustenance capex: 7%
Volume Growth Story
Sales volumes have grown consistently and are expected to accelerate:
Year
Sales Volume (MT)
FY22
18.2
FY23
22.4
FY24
24.8
FY25
26.5
FY26E
29.0
FY27E
32.0
FY28E
34.4
Capacity utilization has ranged between 78-91% over the years. With new capacity coming online and domestic demand improving (thanks to infrastructure push and safeguard duties on imports), the company has headroom to push volumes higher.
Margin Recovery: The EBITDA/Tonne Trajectory
This is where things get interesting. JSW Steel's EBITDA per tonne collapsed in FY23 and FY25 due to weak steel prices and high input costs. The analysts expect a sharp recovery:
Year
EBITDA (₹ billion)
EBITDA/Tonne (₹)
FY21
200
13,249
FY22
390
21,456
FY23
185
8,284
FY24
282
11,395
FY25
229
8,659
FY26E
329
11,355
FY27E
418
13,048
FY28E
474
13,780
What's driving the recovery?
Safeguard Duty: India imposed a 12% safeguard duty on steel imports, providing pricing support to domestic producers. HRC prices have stabilized after the duty imposition.
Softer Input Costs: Coking coal and iron ore prices are expected to remain range-bound, improving spreads.
Volume Leverage: Higher capacity utilization spreads fixed costs over more tonnes.
Product Mix: Increased focus on value-added products (VAP) facilities should improve realizations.
Financial Outlook
Here's the consolidated financial trajectory:
Metric
FY25
FY26E
FY27E
FY28E
Revenue (₹ billion)
1,688
1,839
2,114
2,300
Revenue Growth (%)
-3.5%
8.9%
15.0%
8.8%
EBITDA (₹ billion)
229
329
418
474
EBITDA Margin (%)
13.6%
17.9%
19.8%
20.6%
Adj. PAT (₹ billion)
38
108
177
219
PAT Growth (%)
-57.7%
184.0%
63.7%
24.2%
EPS (₹)
15.6
44.2
72.4
89.9
The PAT growth of 184% in FY26E looks dramatic, but context matters: FY25 was a terrible year with profit down 58% due to weak steel prices. The FY26E figure represents a recovery to more normalized levels, not an extraordinary surge.
Balance Sheet: Deleveraging in Action
The JFE deal is primarily about fixing the balance sheet. Here's the trajectory:
Metric
FY25
FY26E
FY27E
FY28E
Net Worth (₹ billion)
795
895
1,063
1,274
Total Loans (₹ billion)
960
920
829
757
Net Debt/EBITDA (x)
3.6
2.4
1.8
1.3
Debt/Equity (x)
1.0
0.9
0.7
0.5
RoE (%)
4.8%
12.8%
18.0%
18.8%
RoCE (%)
5.4%
9.1%
11.9%
13.1%
The net debt-to-EBITDA ratio stood at 2.97x as of Q2FY26. Post the JFE transaction and with improving EBITDA, this is expected to decline to 1.7x by FY27E. The long-term average for JSW Steel is 2.4x, so the company is moving toward a more comfortable leverage position.
Valuation: Where Does the ₹1,350 Target Come From?
The analysts use an EV/EBITDA methodology:
Component
Sep'27E Value
Consolidated Volumes
33.7 MT
EBITDA/Tonne
₹13,427
Consolidated EBITDA
₹446 billion
Target EV/EBITDA Multiple
9.0x
Target EV
₹4,101 billion
Less: Net Debt
₹681 billion
Equity Value
₹3,329 billion
Shares Outstanding
2.44 billion
Target Price
₹1,350
How does the valuation compare to history?
Current EV/EBITDA: 8.4x FY27E
Target EV/EBITDA: 9.0x
5-year average EV/EBITDA: 7.7x
+1 Standard Deviation: 10.2x
-1 Standard Deviation: 5.2x
The stock is trading above its long-term average but below the +1 standard deviation level. Given the improving fundamentals and deleveraging story, a slight premium to historical average seems justified.
Similarly on P/B:
Current P/B: 2.6x FY27E book value
5-year average P/B: 2.0x
Stock is trading at a premium to historical averages
Wins
1. Strategic Value Unlocking: The JFE partnership monetizes the BPSL turnaround at an attractive valuation while retaining 50% ownership and gaining access to Japanese technology.
2. Massive Debt Reduction: ₹350 billion debt reduction in one transaction fundamentally changes the risk profile of the stock.
3. Capacity Growth Visibility: Clear roadmap to 50 MTPA by FY31, with approved capex already covering expansion to 43.4 MTPA.
4. Margin Tailwinds: Safeguard duties + softer input costs + higher volumes = EBITDA margin expanding from 13.6% to 20.6% over three years.
5. Return Ratios Improving: RoE climbing from 4.8% (FY25) to 18.8% (FY28E), and RoCE from 5.4% to 13.1%.
Risks You Should Know
1. Steel Price Volatility: The thesis depends on domestic steel prices holding up. Any rollback of safeguard duties or surge in cheaper imports could pressure realizations.
2. Execution Risk on Expansion: Adding 16 MTPA capacity over six years is ambitious. Delays or cost overruns could impact returns.
3. Coking Coal Price Spikes: While input costs are expected to remain soft, coking coal is imported and subject to global supply disruptions.
4. Demand Slowdown: Steel demand is tied to infrastructure spending and construction activity. Any slowdown in government capex or real estate could hurt volumes.
5. JV Transaction Risks: The JFE deal is subject to regulatory approvals and could face delays. The second tranche of ₹76 billion is expected only by September 2026.
6. Equity Dilution: The ~2% dilution from buying out JSW Shipping's stake, while minor, does impact per-share metrics.
Who Should Buy This Stock?
Consider JSW Steel if you:
Want exposure to India's steel sector through the largest private producer
Believe domestic steel prices will stay supported due to safeguard duties
Like turnaround stories where the balance sheet is improving
Are looking for high dividend yield (FY27E dividend yield: 0.3%)
Prefer low-volatility, defensive stocks
Are uncomfortable with cyclical commodity businesses
Need near-term certainty on earnings (steel prices can swing)
Frequently Asked Questions
What is JSW Steel's target price?
Motilal Oswal has a target price of ₹1,350 for JSW Steel, representing an 18% upside from the current price of ₹1,144. This is based on 9x EV/EBITDA multiple applied to September 2027 estimates.
Is JSW Steel a good stock to buy now?
The analysts maintain a BUY rating. The JFE Steel joint venture is a positive catalyst that reduces debt by ₹350 billion while unlocking value from BPSL. Margin recovery is expected from FY26 onwards. However, steel stocks are cyclical and subject to commodity price volatility.
What is the JFE Steel joint venture about?
JSW Steel is restructuring its Bhushan Power and Steel (BPSL) unit into a 50:50 joint venture with Japan's JFE Steel. JFE will invest ₹157.5 billion for its 50% stake, and the JV will raise ₹210 billion in debt. JSW Steel receives ₹320 billion in cash and removes ₹350 billion from its consolidated debt.
What is JSW Steel's capacity expansion plan?
JSW Steel aims to expand capacity from 34.2 MTPA currently to 50 MTPA by FY31. Near-term additions include 2 MTPA at Vijayanagar, 5 MTPA at Dolvi, and 0.5 MTPA at BPSL. A Phase-II expansion of 8.1 MTPA is planned for later.
How will JSW Steel's debt reduce after the JFE deal?
Consolidated debt will reduce by approximately ₹350 billion, including ₹50 billion of BPSL debt being removed from JSW Steel's books. The net debt-to-EBITDA ratio is expected to decline from 3.6x (FY25) to 1.8x (FY27E).
What is JSW Steel's EBITDA per tonne?
EBITDA per tonne was ₹8,659 in FY25, which was a weak year. This is expected to recover to ₹11,355 in FY26E, ₹13,048 in FY27E, and ₹13,780 in FY28E, driven by higher steel prices (post safeguard duty) and softer input costs.
How does JSW Steel compare to Tata Steel?
Both are large integrated steel producers. JSW Steel is the largest private producer in India with a clearer domestic focus. Tata Steel has significant European operations that have been a drag on profitability. JSW Steel's JFE partnership gives it access to Japanese technology for high-value steel production.
What are the main risks for JSW Steel?
Key risks include steel price volatility, execution delays in capacity expansion, coking coal price spikes, demand slowdown from infrastructure or real estate sectors, and regulatory delays in the JFE transaction.
The Bottom Line
JSW Steel is in the middle of a strategic transformation. The JFE partnership is a smart move, it monetizes the successful BPSL turnaround, slashes debt, and brings in a technology partner without losing control of the asset.
The stock trades at 8.4x FY27E EV/EBITDA, slightly above historical averages but justified by the improving fundamentals. With EBITDA margins expected to expand from 13.6% to 20.6% over three years and PAT growing at a 63-64% CAGR from the FY25 trough, the 18% upside to target looks achievable.
The key variable is steel prices. If safeguard duties hold and global steel supply remains disciplined, JSW Steel should deliver on these estimates. If steel prices crack, all bets are off, but that's the nature of investing in cyclical commodities.
Disclaimer: The companies mentioned in the article are for information purposes only. This is not investment advice.
