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JSW Steel reported 3QFY11 EBITDA 5% above our estimate but lower than market expectations.
Management has guided for a better 4Q11 due to better pricing. However, we believe margin
concerns will escalate in 1HFY12 as coking coal prices reach their peak and volumes are
subdued due to seasonality.
3QFY11 EBITDA 5% above expectations
JSW Steel reported 3QFY11 EBITDA at Rs10.2bn (-6% yoy and -1% qoq), which was 5% above
our estimate. Average domestic realisation at US$805/tonne was up 13% yoy and flat qoq.
EBITDA/tonne at US$136 was down 20% yoy and flat qoq due to high raw material costs. PAT, at
Rs2.9bn (-32% yoy and -22% qoq) was 17% above our estimate due to a sharp reduction in
interest expenses and lower income tax provisioning. Steel sales volumes, at 1.6mt (+12% yoy
and flat qoq), were in line with our estimate.
Expansion status and future plans
The current 3.2mt expansion at the Vijayanagar works is due to complete by March 2011.
Management has lowered its guidance for FY12 volumes from 9.5mt to 9mt. Work on the new
4mt West Bengal plant is due to commence in April 2011 and take three years to complete, at a
cost of Rs120bn (Rs40bn to be spent in FY12). A new cold-rolling mill complex of 2.3mt at
Vijayanagar is being planned at a cost of Rs40.3bn. The ongoing acquisition of Ispat Industries
appears to be nearing completion, following which JSW would proportionately consolidate the
financials of Ispat Industries.
Management guides to a better 4Q but concerns remain. Maintain Sell
Management has guided for a strong 4QFY11 on the back of buoyant international pricing.
However, we note that the outlook for 1HFY12 is relatively uncertain owing to sharp raw-material
pricing undercurrents, especially as coking coal prices have surged by more than 30% in the spot
markets in the last few weeks. JSW has secured coking coal supplies up to March-April 2011, but
contracts for 1QFY12 are yet to be settled, which against the backdrop of a seasonally weak steel
market could compress margins. The stock has underperformed the sector over the last one and
three months by 12% and 17%. Our numbers for FY12/13 are largely unchanged but we have
raised our FY11F following the results. We have made a slight increase in our target price to
Rs855.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel reported 3QFY11 EBITDA 5% above our estimate but lower than market expectations.
Management has guided for a better 4Q11 due to better pricing. However, we believe margin
concerns will escalate in 1HFY12 as coking coal prices reach their peak and volumes are
subdued due to seasonality.
3QFY11 EBITDA 5% above expectations
JSW Steel reported 3QFY11 EBITDA at Rs10.2bn (-6% yoy and -1% qoq), which was 5% above
our estimate. Average domestic realisation at US$805/tonne was up 13% yoy and flat qoq.
EBITDA/tonne at US$136 was down 20% yoy and flat qoq due to high raw material costs. PAT, at
Rs2.9bn (-32% yoy and -22% qoq) was 17% above our estimate due to a sharp reduction in
interest expenses and lower income tax provisioning. Steel sales volumes, at 1.6mt (+12% yoy
and flat qoq), were in line with our estimate.
Expansion status and future plans
The current 3.2mt expansion at the Vijayanagar works is due to complete by March 2011.
Management has lowered its guidance for FY12 volumes from 9.5mt to 9mt. Work on the new
4mt West Bengal plant is due to commence in April 2011 and take three years to complete, at a
cost of Rs120bn (Rs40bn to be spent in FY12). A new cold-rolling mill complex of 2.3mt at
Vijayanagar is being planned at a cost of Rs40.3bn. The ongoing acquisition of Ispat Industries
appears to be nearing completion, following which JSW would proportionately consolidate the
financials of Ispat Industries.
Management guides to a better 4Q but concerns remain. Maintain Sell
Management has guided for a strong 4QFY11 on the back of buoyant international pricing.
However, we note that the outlook for 1HFY12 is relatively uncertain owing to sharp raw-material
pricing undercurrents, especially as coking coal prices have surged by more than 30% in the spot
markets in the last few weeks. JSW has secured coking coal supplies up to March-April 2011, but
contracts for 1QFY12 are yet to be settled, which against the backdrop of a seasonally weak steel
market could compress margins. The stock has underperformed the sector over the last one and
three months by 12% and 17%. Our numbers for FY12/13 are largely unchanged but we have
raised our FY11F following the results. We have made a slight increase in our target price to
Rs855.
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