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JSW Steel Underweight
JSTL.BO, JSTL IN
Standalone operation below estimates; Mar qtr to be significantly better
• Domestic operating results below estimates: JSW Steel reported
consol EBITDA of Rs10.2bn versus JPMe at Rs11bn with standalone
operations 6% below estimates. Realizations were flat q/q and volumes
increased by a mere 1%, leading to EBITDA/MT of $140/MT, similar to
2QFY11 levels. Consol interest cost for the quarter declined 25% q/q
(30% below our expectation) due to lower debt levels (prepayment of
Rs4.1bn and repayment of Rs7bn) and lower interest cost. Standalone
tax rate of 28% was lower than our estimates. Consol PAT for 3QFY11
of Rs2.92bn was inline with our estimates.
• March quarter to improve significantly, in line with expectations:
Management guided to an improved 4QFY11 driven by sequentially
higher volumes (mgt indicated improving demand in Jan) and better
realizations (3% hike taken in Jan and another increase expected in Feb
with higher global prices). While coking coal costs are likely to be higher
(Mar qtr contract at $225/MT vs. $209/MT in Dec qtr), blended iron ore
costs are expected to remain flat q/q.
• Another expansion announced: The 3MT expansion remains on track
for commissioning by Mar-11, with the residual capex of ~Rs20bn
expected to flow in FY12. JSW also announced plans to set up a 2.3MT
Cold Rolling Mill (CRM) in two phases in Vijaynagar, with the proposed
complex having 2.3MT picking cum coupled tandem cold rolling mill,
1.9MT (2 lines of 0.95MT each) of continuous annealing line and 0.4MT
of Galvanizing line. Total investment is expected at Rs40.25bn with
internal accruals of Rs13.5bn and debt at Rs26.7bn. JSW expects to
spend Rs40bn on the green field Bengal project in FY12E. Production
has started in the Chile mine and the company expects the first shipment
in 1QFY12E and prod of 1MT in FY12E. Shipments from US coal mine
are also expected to start from April.
• Ispat acquisition: JSW Steel infused Rs21.57bn into Ispat (through pref
allotment) in Jan-11 and is awaiting SEBI approval to complete the open
offer formalities. The company remains focused on refinancing the
Rs75bn Ispat debt before the Sept-11 deadline. JSW believes that the
near-term synergies from the acquisition (sourcing iron ore, leveraging
JSW’s marketing network, pellet, and coke integration) will help
improve Ispat's operating performance. The company also acquired an
0.5MT integrated steel plant (partially completed) with 700acres land,
building and machinery for Rs2.1bn. However, the transaction is not yet
over.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel Underweight
JSTL.BO, JSTL IN
Standalone operation below estimates; Mar qtr to be significantly better
• Domestic operating results below estimates: JSW Steel reported
consol EBITDA of Rs10.2bn versus JPMe at Rs11bn with standalone
operations 6% below estimates. Realizations were flat q/q and volumes
increased by a mere 1%, leading to EBITDA/MT of $140/MT, similar to
2QFY11 levels. Consol interest cost for the quarter declined 25% q/q
(30% below our expectation) due to lower debt levels (prepayment of
Rs4.1bn and repayment of Rs7bn) and lower interest cost. Standalone
tax rate of 28% was lower than our estimates. Consol PAT for 3QFY11
of Rs2.92bn was inline with our estimates.
• March quarter to improve significantly, in line with expectations:
Management guided to an improved 4QFY11 driven by sequentially
higher volumes (mgt indicated improving demand in Jan) and better
realizations (3% hike taken in Jan and another increase expected in Feb
with higher global prices). While coking coal costs are likely to be higher
(Mar qtr contract at $225/MT vs. $209/MT in Dec qtr), blended iron ore
costs are expected to remain flat q/q.
• Another expansion announced: The 3MT expansion remains on track
for commissioning by Mar-11, with the residual capex of ~Rs20bn
expected to flow in FY12. JSW also announced plans to set up a 2.3MT
Cold Rolling Mill (CRM) in two phases in Vijaynagar, with the proposed
complex having 2.3MT picking cum coupled tandem cold rolling mill,
1.9MT (2 lines of 0.95MT each) of continuous annealing line and 0.4MT
of Galvanizing line. Total investment is expected at Rs40.25bn with
internal accruals of Rs13.5bn and debt at Rs26.7bn. JSW expects to
spend Rs40bn on the green field Bengal project in FY12E. Production
has started in the Chile mine and the company expects the first shipment
in 1QFY12E and prod of 1MT in FY12E. Shipments from US coal mine
are also expected to start from April.
• Ispat acquisition: JSW Steel infused Rs21.57bn into Ispat (through pref
allotment) in Jan-11 and is awaiting SEBI approval to complete the open
offer formalities. The company remains focused on refinancing the
Rs75bn Ispat debt before the Sept-11 deadline. JSW believes that the
near-term synergies from the acquisition (sourcing iron ore, leveraging
JSW’s marketing network, pellet, and coke integration) will help
improve Ispat's operating performance. The company also acquired an
0.5MT integrated steel plant (partially completed) with 700acres land,
building and machinery for Rs2.1bn. However, the transaction is not yet
over.
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