ET reported that Morgan Stanley has recommends Overweight rating on JSW Steel with a target price of INR 1,046.

Steel prices look firm even though the Street seems to expect a sustained correction. JSW's strong growth prospects are based on solid and timely volume growth and process improvements and so have few risks. Morgan Stanley expects 35% CAGR in steel output and 120% CAGR in EPS in FY09-FY 12.

Negative earnings impact of some hardening of coal and iron ore prices should be counteracted by expanding scale and growing self-sufficiency in power and coke. Despite the recent run-up , the stock price may have some more steam, especially given its valuations of 6.9x and 5.8x based on our FY10 and FY11 EV/EBITDA, which look particularly attractive in view of the EBITDA CAGR forecast of 43% in FY 09-FY 12.

For every 1% change in steel prices, FY10E EPS may change by 5%. Morgan Stanley expects sales volume CAGR of 37% in FY09-FY 12. Uptrend may act as a negative factor for earnings performance. With progress in the next capacity addition plan, steel prices may fall more sharply and for longer than we expect. Higher raw material costs, sustained pressure on balance sheet and cash flows, may lead to a delay in project execution.

(Sourced from Economic Times)