Copyright © HT Digital Streams Limited All rights reserved. Ananya Roy 3 min read 20 Oct 2025, 13:31 IST JSW Steel’s premium valuation leaves limited scope for further outperformance in the stock. (Reuters) Summary JSW Steel’s second-quarter earnings rose, driven by higher plant utilization, stronger margins, debt cuts, domestic demand and policy support. But rising raw material costs and heavy capital spending could dampen future gains, leaving inventory upside limited. For JSW Steel Ltd, India’s largest steel producer, things have been looking up recently. The company reported exemplary growth for a second quarter in a row, albeit from a low base in 2024-25 due to underperforming subsidiaries and low steel prices. Also, as the legal overhang lifted over JSW Steel’s six-year-old acquisition of Bhushan Power and Steel Ltd after a special bench of the Supreme Court overturned an earlier decision, usage at the now profitable BPSL has picked up. Supported by an increase in production at JSW Steel’s Vijayanagar plant and the resumption of manufacturing at its Dolvi plant, the company’s sales volume in the September quarter (second quarter of 2025-26) increased by 10% over the preceding three months. On a year-on-year basis, sales volume grew by 20% to 7.3 million tonnes. Second-quarter sales grew 14% year-on-year to ₹44,560 crore, ahead of the industry. Ebitda growth was faster at 31%, which would have been even higher at 39% had it not been for foreign exchange losses due to the rupee’s depreciation. Profit after tax rose 270% year-on-year in the second quarter. But adjusted for the surrender of an iron ore block that dragged down JSW Steel’s profit in the year-ago second quarter, the company’s latest quarterly profit was up 139% year-on-year. Its profit was supported by continued debt reduction, group structure consolidation, higher operating leverage, and consequently falling interest expenses (as a percentage of Ebitda). Higher other income, at ₹1,623 crore, also contributed. A better product mix, improved efficiency on higher capacity utilization and lower raw material costs resulted in Ebitda margin expanding from 13.7% in Q2FY25 to 15.8% in Q2FY26. Ebitda per tonne increased by 9% year-on-year. Mixed outlook JSW Steel’s management expects a recovery in steel prices in November and December due to strong domestic demand. Steady government capital spending and housing demand are expected to keep domestic demand resilient. Domestic steel prices are supported by the 12% safeguard duty that India imposed for 200 days from April. Expected production cuts in China are also expected to help, even if management’s expectation of a three-year extension to the safeguard duty does not materialize. But the resulting higher realizations—average selling price per unit of steel—in the third quarter are expected to negate only part of the impact of the mixed trends seen in raw material costs. Iron ore costs are expected to decrease, while coking coal costs are likely to increase. The writing is already on the wall—raw material costs expanded sequentially from 49% to 51.6% of JSW Steel’s revenue, resulting in Ebitda margin shrinking from 17.6% in the first quarter (April-June) to 15.8% in the September quarter. To make matters worse, potential retroactive application of state-imposed tax on mineral rights could further erode JSW Steel’s margins. Still, the company’s margins were somewhat supported by higher operating leverage, thanks to capacity utilization improving from 87% to 92% quarter-on-quarter. Valuation issues Following capital expenditure of ₹6,535 crore in the first six months of FY26, JSW Steel’s capex plans of ₹62,000 crore between FY25 and FY28 have been confirmed. Although this promises healthy growth prospects, it could weigh on investor sentiment if net debt escalates past management’s target ceiling of three times Ebitda. Furthermore, exports only account for 10% of JSW Steel’s volumes. This enabled the company to report overall expansion in profitability despite erosion of Ebitda per tonne in its international operations. Compared to peer Tata Steel Ltd, which derives about 40% of its consolidated revenue from Europe, JSW Steel’s operations are more focused on India. The company derives only 2–3% of its total sales from Europe. This has shielded it from the higher operating and decarbonisation costs in Europe that have plagued Tata Steel recently. That said, JSW Steel has a premium valuation of 7.5 times its September 2027 enterprise value/Ebitda, based on Centrum Broking’s estimate, which praises recent outperformance and domestic headwinds. This leaves limited room for further outperformance in the stock. Following its earnings announcement on Friday, JSW Steel stock underperformed the broader metals index on Monday, falling nearly 1%. 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From legal battles to record profits—can JSW Steel’s winning streak continue?
