Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel
Lowering estimates and price target
Results were below our expectations primarily because
realisations were approximately 1% below our
estimates.
Despite lower coking coal prices, raw material cost per
tonne was flat on a qoq basis.
We lower FY11 EPS estimate by 8.4% to Rs82.8.
We also reduce our price target from Rs1,348 to
Rs1,255. Retain IN-LINE
Results below our expectations – JSW’s 3Q FY11
numbers were below our estimates primarily because of
lower realisations.
Volume was marginally up sequentially – Volume
increased from 1.58m tonnes in 2Q FY11 to 1.59m tonnes
in 3Q FY11. Considering that demand growth in the industry
was not good this quarter with infrastructure slowing down,
this sequential movement is a positive sign.
Raw material cost flat sequentially on per tonne basis –
Raw material costs increased from Rs23,330/tonne in 2Q to
Rs23,410 in 3Q FY11 despite lower coking coal prices in
the quarter. This can be explained only by the fact that the
company might have had to pay higher iron ore prices in the
local market.
We lower EPS estimates – We cut FY11 EPS estimate by
8.4% to Rs82.8. We have also reduced our FY12 and FY13
EPS estimates by 7.3% and 6.8% to Rs115.6 and Rs131.2,
respectively. The main reasons for these cuts are
strengthening raw material prices and lack of backward
integration.
Valuation – On the basis of these earnings revisions, we
lower our price target from Rs1,348 to Rs1,255.
Results below our estimates
JSW’s results were below our estimates primarily because of lower realisations. Realisation was
1% lower than our estimate while volume was 0.5% lower than our estimate. We cut FY11
earnings by 8.4% to account for likely raw material cost increases in 4Q FY11 and the earnings
disappointment in 3Q FY11.
Realisation was flat qoq
The overall steel realisation was flat qoq. While we estimated around 1% rise in qoq realisation,
the actual number was flat qoq.
At the start of 4Q FY11, however, steel prices have gone up by around 5%, hence, we expect
JSW’s 4Q FY11 realisation to be around Rs37,950, up 4.7% qoq.
Raw material costs were flat qoq
Note that contract prices of coking coal had gone down by US$16-17 qoq in 3Q FY11. Adjusted
for inventory, this should have resulted in RM costs falling by at least Rs250/ tonne or 1.1% qoq;
instead, RM costs went up 0.35%. The difference can only be explained by higher iron ore
procurement prices. While NMDC has raised prices in Jan 2011, JSW Steel must have felt the
impact of rising international prices in the procurement of iron ore from the local market.
4Q FY11 RM costs likely to be higher
Raw material costs have gone up driven by the hikes in iron ore and coking coal prices. For the
current quarter, the contract price of NMDC has gone up and the contract price of coking coal will
be even higher at US$225. Added to it is the fact that international iron ore prices have gone up
by at least US$20/ ton in the past 30 days. All these factors should lead to raw material costs
going up by Rs600/tonne.
Global steel prices have risen at a scorching pace
The global steel price has gone up at a scorching pace in the past couple of months with all the
major price indices rising by more than 10% in the past couple of months.
Driven by user level inventory restocking
Globally, there has been a big inventory de-stocking cycle going on for the past two quarters.
This resulted in prices collapsing in 3Q and 4Q CY2010.
However, in the past two months there was a scramble by steel users to replenish their inventory,
which resulted in steel prices moving up a scorching pace.
Indian steel prices are still at a discount to import parity
Indian steel prices are still at a discount to import parity prices. While this is counterintuitive given
the fact that India is a net importer of steel to the tune of 3m tonnes or 5% of the steel demand
each year, however, this has been lead primarily by the sluggish domestic demand in the last
couple of quarters.
As indicated in the table above, Indian steel prices are still trading at a steep discount to import
parity pricing. However, given the present inflation scare, we think it’s unlikely that steel makers
will have the liberty to raise prices to the import parity levels.
We are cutting our earnings estimates
We reduce FY11 earnings by 8.4% and FY12 by 7.3% because of
1. Contract price increase by NMDC
2. Strength in domestic iron ore prices on the back of hardening international iron ore prices
3. Coking coal price assumption unchanged at US$275 for FY12
Cut price target to Rs1,255 from Rs1,348
We value the base business at 10x FY12E earnings and add the option value of new expansion
projects (Rs99/ share).
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel
Lowering estimates and price target
Results were below our expectations primarily because
realisations were approximately 1% below our
estimates.
Despite lower coking coal prices, raw material cost per
tonne was flat on a qoq basis.
We lower FY11 EPS estimate by 8.4% to Rs82.8.
We also reduce our price target from Rs1,348 to
Rs1,255. Retain IN-LINE
Results below our expectations – JSW’s 3Q FY11
numbers were below our estimates primarily because of
lower realisations.
Volume was marginally up sequentially – Volume
increased from 1.58m tonnes in 2Q FY11 to 1.59m tonnes
in 3Q FY11. Considering that demand growth in the industry
was not good this quarter with infrastructure slowing down,
this sequential movement is a positive sign.
Raw material cost flat sequentially on per tonne basis –
Raw material costs increased from Rs23,330/tonne in 2Q to
Rs23,410 in 3Q FY11 despite lower coking coal prices in
the quarter. This can be explained only by the fact that the
company might have had to pay higher iron ore prices in the
local market.
We lower EPS estimates – We cut FY11 EPS estimate by
8.4% to Rs82.8. We have also reduced our FY12 and FY13
EPS estimates by 7.3% and 6.8% to Rs115.6 and Rs131.2,
respectively. The main reasons for these cuts are
strengthening raw material prices and lack of backward
integration.
Valuation – On the basis of these earnings revisions, we
lower our price target from Rs1,348 to Rs1,255.
Results below our estimates
JSW’s results were below our estimates primarily because of lower realisations. Realisation was
1% lower than our estimate while volume was 0.5% lower than our estimate. We cut FY11
earnings by 8.4% to account for likely raw material cost increases in 4Q FY11 and the earnings
disappointment in 3Q FY11.
Realisation was flat qoq
The overall steel realisation was flat qoq. While we estimated around 1% rise in qoq realisation,
the actual number was flat qoq.
At the start of 4Q FY11, however, steel prices have gone up by around 5%, hence, we expect
JSW’s 4Q FY11 realisation to be around Rs37,950, up 4.7% qoq.
Raw material costs were flat qoq
Note that contract prices of coking coal had gone down by US$16-17 qoq in 3Q FY11. Adjusted
for inventory, this should have resulted in RM costs falling by at least Rs250/ tonne or 1.1% qoq;
instead, RM costs went up 0.35%. The difference can only be explained by higher iron ore
procurement prices. While NMDC has raised prices in Jan 2011, JSW Steel must have felt the
impact of rising international prices in the procurement of iron ore from the local market.
4Q FY11 RM costs likely to be higher
Raw material costs have gone up driven by the hikes in iron ore and coking coal prices. For the
current quarter, the contract price of NMDC has gone up and the contract price of coking coal will
be even higher at US$225. Added to it is the fact that international iron ore prices have gone up
by at least US$20/ ton in the past 30 days. All these factors should lead to raw material costs
going up by Rs600/tonne.
Global steel prices have risen at a scorching pace
The global steel price has gone up at a scorching pace in the past couple of months with all the
major price indices rising by more than 10% in the past couple of months.
Driven by user level inventory restocking
Globally, there has been a big inventory de-stocking cycle going on for the past two quarters.
This resulted in prices collapsing in 3Q and 4Q CY2010.
However, in the past two months there was a scramble by steel users to replenish their inventory,
which resulted in steel prices moving up a scorching pace.
Indian steel prices are still at a discount to import parity
Indian steel prices are still at a discount to import parity prices. While this is counterintuitive given
the fact that India is a net importer of steel to the tune of 3m tonnes or 5% of the steel demand
each year, however, this has been lead primarily by the sluggish domestic demand in the last
couple of quarters.
As indicated in the table above, Indian steel prices are still trading at a steep discount to import
parity pricing. However, given the present inflation scare, we think it’s unlikely that steel makers
will have the liberty to raise prices to the import parity levels.
We are cutting our earnings estimates
We reduce FY11 earnings by 8.4% and FY12 by 7.3% because of
1. Contract price increase by NMDC
2. Strength in domestic iron ore prices on the back of hardening international iron ore prices
3. Coking coal price assumption unchanged at US$275 for FY12
Cut price target to Rs1,255 from Rs1,348
We value the base business at 10x FY12E earnings and add the option value of new expansion
projects (Rs99/ share).
No comments:
Post a Comment