JSW Steel's FY26 EBITDA Outlook: Navigating Legal Headwinds and Unlocking Hidden Value

The Supreme Court's May 2025 ruling to liquidate Bhushan Power & Steel Limited (BPSL) and unwind JSW Steel's ₹19,300 crore resolution plan has sent shockwaves through the company's valuation and FY26 EBITDA outlook. While the immediate impact is clear—a potential 10-13% EBITDA decline—the ruling also creates a unique opportunity for investors to buy a fundamentally strong steelmaker at a discounted price. Here's why the risks are overstated, and how the stock could rebound sharply in the next 12-18 months.

The Legal Setback: A Necessary Pruning, Not a Death Knell

The Supreme Court's decision to invalidate JSW's BPSL acquisition stems from procedural missteps, not operational failure. Key points:
- Refund Obligation: JSW must return ₹19,300 crore to financial creditors, but this sum will be offset by reduced debt (BPSL's ₹6,500 crore debt is now off JSW's balance sheet).
- Capacity Loss: BPSL's 4.5 million-tonne capacity (13% of JSW's total) will be lost, but this reduces overcapacity in the domestic market, potentially boosting steel prices and margins.
- Strategic Flexibility: Without the BPSL burden, JSW can focus on its core operations, including its world-class plants in Vijayanagar and its greenfield expansion in Odisha.

The stock has already priced in much of the bad news, falling 6% on the ruling and underperforming peers by 15% YTD. This creates a compelling entry point for long-term investors.

FY26 EBITDA: The Numbers Tell a Story of Resilience

Analysts project JSW's FY26 EBITDA at ₹31,000–33,000 crore, down from ₹35,000 crore had BPSL stayed consolidated. However, three factors mitigate the impact:
1. Refund Cash Inflows: The ₹19,300 crore return will boost liquidity, enabling debt reduction and M&A flexibility. Fitch Ratings estimates this could cut net debt by ₹4,000 crore, lowering leverage to 2.8x.
2. Margin Improvements: Reduced capacity and higher steel prices (due to BPSL's exit) could lift margins to 14-15%, up from 13.5% in Q4 FY25.
3. Dividend Discipline: JSW's strong free cash flow (₹15,000–18,000 crore FY26) supports a dividend payout ratio of 30%, rewarding shareholders during the transition.

Valuation: A Discounted Champion with Hidden Upside

JSW trades at 13x FY26E EBITDA, a 20% discount to its historical average of 16x. This undervaluation ignores two critical catalysts:
1. New BPSL Resolution: Despite the ruling, JSW could negotiate a revised plan with creditors, retaining BPSL's upgraded assets (e.g., its 1 mtpa expansion post-acquisition). Success here could add ₹2,000–3,000 crore to FY26 EBITDA.
2. Global Expansion: JSW's greenfield projects in the Middle East and Southeast Asia are on track, targeting 20 million tonnes of new capacity by 2030. These projects, not yet reflected in valuations, could unlock a 30% premium.

Analyst Consensus:
- Emkay Research: “The stock's downside is limited to ₹800-₹900; our ₻1,200 target assumes a 15x EBITDA multiple post-2026.”
- CreditSights: “A 10% EBITDA hit is manageable. JSW's balance sheet and cash flows remain robust.”

The Call to Action: Buy the Dip, Play the Turnaround

The Supreme Court ruling is a speed bump, not a roadblock. Here's why investors should act now:
- Risk/Reward: The stock trades at a 20% discount to fair value, with a worst-case downside of 10% but 30-40% upside if BPSL is retained or steel margins recover.
- Timing: The refund and liquidation process will conclude by Q1 CY26, clearing overhang and unlocking buying momentum.
- Management Track Record: JSW's leadership has navigated crises before (e.g., the 2018 Vijayanagar shutdown), emerging stronger each time.

Entry Point: Accumulate shares at ₹900-₹950, with a 12-month price target of ₹1,200.

Conclusion: A Steel Giant's Resurgence is Imminent

JSW Steel is a classic value play: a high-quality asset trading at a deep discount due to temporary legal noise. The BPSL ruling, while painful, strips away non-core complexity and positions JSW to capitalize on its core strengths—world-class plants, low-cost operations, and a pipeline of growth projects. For investors with a 3-5 year horizon, this is a once-in-a-decade opportunity to buy a blue-chip steelmaker at a 20% discount.

Act now before the market catches up.