JSW STEEL Operationally in line :: Edelweiss

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JSW STEEL Operationally in line


􀂃 EBITDA in line; PAT higher due to forex gains
JSW Steel (JSW) reported Q2FY11 consolidated net revenue of INR 59.7 bn (up
26% Y-o-Y, 23% Q-o-Q) due to 16% Y-o-Y increase in realisations and 9% Y-o-Y
increase in volumes at the standalone level. EBITDA, at INR 10.2 bn, was largely
in line with our estimate of INR 10.3 bn. PAT, at INR 3.7 bn, was higher than our
estimate of INR 2.5 bn due to other income of INR 1.6 bn led by forex gains.
􀂃 West Bengal steel project of 4.5 mtpa relaunched
The company has relaunched its West Bengal steel project with 4.5 mtpa
capacity at an investment of INR 160 bn. JSW will hold 94% stake in the project
and is required to invest equity of INR 53.3 bn over three years from zero date
of March 2011. Project includes investment in 660 MW CPP and captive coal
mines. Expected completion by March 2014.
􀂃 Potential equity infusion of INR 24.9 bn in 21 months
Post tranche I of INR 48 bn, JFE stake is below 14.99%. Considering this, it has
exercised the right for tranche II investment aggregating to INR 6 bn. Assuming
conversion of promoter warrants and outstanding FCCBs (in 2012), further
equity infusion of INR 18.9 bn could be triggered in the next 21 months.
􀂃 Chile and US mines to commence over Q3FY11 and Q4FY11
We expect some delay in commencement of iron ore and coking coal mines in
Chile and US. The company is still awaiting some mining permits in the US.
􀂃 Brownfield expansion of 3.2 mtpa on track; potential for 2 mtpa more
Management reiterated timely completion of 3.2 mtpa expansion by March 2011.
CPP of 300 MW has commenced generation already. Management indicated
potential to expand by further 2 mtpa by debottlenecking.
􀂃 Outlook and valuations: Growth ahead; maintain ‘BUY’
We expect H2FY11 to show improvement for JSW as volume ramp up kicks in
(Salem blast furnace of 1 mtpa has also restarted), increased captive coke &
power and iron ore beneficiation and firm steel prices. At this stage, we are
retaining our forward estimates. Upside possibilities through commencement of
mines in Chile and US in FY11, greater–than-expected Indian steel demand and
more robust steel pricing in FY12. We maintain our ‘BUY/Sector
Outperformer’ recommendation/ rating on the stock with a fair valuation of INR
1,372/share.