Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel (JSTL)
Metals & Mining
Another quarter of weak performance. JSW’s reported 3QFY11 EBITDA of Rs10.2
bn (-5.8% yoy) was 10.7% lower than our estimate with weaker-than-expected
realization the key reason for the shortfall. Net income of Rs2.9 bn declined 32.1% yoy,
falling short of our estimate. We like JSW’s execution and volume growth, the stock
also does not trade at demanding valuations. However, we maintain our REDUCE rating
based on a lack of near-term catalysts, the sharp rise in raw material prices, pressure on
industry conversion margins and little raw material integration. We lower FY2012E and
FY2013E EPS estimates by 8.1% and 22% and TP to Rs1000 (Rs 1,115 earlier).
EBITDA and net income lower than our estimate
JSW Steel reported consolidated 3QFY11 EBITDA of Rs10.2 bn (-0.6%qoq and -5.8% yoy) about
10.7% lower than our estimate of Rs11.4 bn. EBITDA/ ton was US$135, (-18.1% yoy, +6.6% qoq)
about 6.1% lower than our estimate. We attribute the entire deviation to lower-than-expected
steel realization (+16.8% qoq, +3.8% yoy). Net income declined 32.1% yoy to Rs2.9 bn. Steel
deliveries of 1.59 mn tons (+0.6% qoq and +11.8% yoy) was in line with our estimate; inventory
declined by 62K tons. JSW’s production continues to be well below rated capacity; management
attributed the same to lack of sinter capacity
Update on Ispat Steel acquisition
JSW Steel has acquired a 45.5% stake in Ispat for Rs21.6 bn, thanks to the preferential allotment
of shares by Ispat at Rs19.85. This can increase to 51.2% on full subscription to the mandatory
open offer. The acquisition price at an EV/EBITDA of 9.1X at management stated 12-month
profitability target is expensive. The acquisition will dilute JSW’s 2012E earnings by 7.2 to 10.2%,
in our view. JSW indicated logistics management, efficiency in raw material sourcing and better
absorption of fixed costs in case plant runs at rated capacity as key areas that will reduce COP.
Pressure on profitability likely to sustain; cut estimate and TP
While 4QFY11 will be markedly better quarter, medium-term profitability trends do not appear
encouraging. A spike in coking coal prices and firm iron ore price may pressure profitability. Our
profitability assumption for FY2012E and FY2013E reduces by 6.2 % and 12% to US$158/ton and
US$150/ ton. We cut our EPS estimates by 8.1% and 22% for FY2012E and FY2013E,
respectively. We will incorporate financials the of Ispat on completion of the open offer. We like
JSW’s execution; we even believe that the stock may not be expensive. However, a lack of nearterm
catalysts coupled with risks to profitability drive our REDUCE rating. We reduce our target
price to Rs1,000, from Rs1,115 earlier on the cut in our earnings estimate.
Update on raw material and capacity expansion projects
JSW expects iron ore shipments from Chile mines to start from 1QFY12, a delay of six
months from the original plan. The company commenced mining operations in Nov’ 10.
JSW expects to ship 1mn ton iron ore in FY2012E. Iron ore capacity will be bumped to 5
mn tons over a period of three years. JSW expects FOB cost of iron ore of US$60/ ton for
iron beneficiated to 62.5% FE. Note that the Chile iron ore mine will act as a hedge
against the iron ore price and will be sold in the markets. JSW owns 70% economic
interest in the Chilean iron ore mine.
JSW expects shipment of coking coal from US to start by April 2011. The company
expects shipments of ~80 kt / month at a cost of production of ~US$85/ ton FOB. In
addition, transportation costs would add another US$40/ ton. As a result, landed costs of
coking coal in India will likely be US$125/ ton.
The 3.2 mtpa expansion at Vijayanagar is on course and scheduled for completion by
end- FY2011E. This will increase Vijayanagar’s crude steel capacity to10 mtpa. Overall,
crude steel capacity will increase to 11mtpa.
JSW has proposed new cold rolling mill complex of 2.3 mtpa in two phases at Vijaynagar
works. Total investments in this project will be Rs40.3 bn, which will funded by D/E ratio
of 2:1. The targeted date of completion is 1QFY14 for Phase 1 and 1QFY15 for Phase II.
JSW has announced acquisition of Bellary Steel’s asset purchase. This includes 700 acres
of land, building and equipment pertaining to 0.5 mtpa steel plant close to JSW’s
Vijaynagar complex.
Gross debt unlikely to reduce over the next 2-3 years
JSW management indicated that gross debt is unlikely to change over the next two years.
Expansion plans, greenfield projects and acquisitions will keep debt at elevated levels. Note
that JSW raised Rs48 bn at Rs1,500/ share in 2QFY11. In addition, it raised a further Rs6 bn
in 3QFY11; Rs1.47 bn through preferential allotment of equity shares and Rs4.63 bn
through GDRs. The amount raised has partially gone in to reducing debt; the balance may
be used for expansion and acquisition. JSW reduced FY2011E capex guidance to Rs55 bn
versus Rs70 bn earlier and stepped up FY2012E capex guidance to Rs70 bn. Capex in
FY2012E will be directed towards (1) JSW Bengal project Rs40 bn; this target appears to be
optimistic; (2) Rs10 bn for a new cold rolling mill and (3) Rs20 bn on the current expansion
at Vijayanagar.
Key result highlights and commentary for FY2011E
3QFY11 steel deliveries grew 11.8% yoy to 1.59 mn tons which was flattish on a qoq
basis and in line with our estimate. JSW liquidated inventory to the extent of 62K tons
during the quarter.
Average realization increased 16.8% yoy and 3.8% qoq to Rs36,230/ton (US$806/ ton)
and was around 1.4% below our estimate. The company took another step toward
achieving a better product mix with a further decline in semis sales (-11%qoq, -72%yoy)
to 77K tons and an improvement in more value-added products. Rolled flat product grew
33% yoy to 1.25 mn tons and rolled long products grew 19% yoy to 0.28 mn tons. The
management indicated an EBITDA level benefit of Rs1.4 bn over 3QFY11 from change in
product mix.
Raw material cost increase by 21.4% qoq and 30.2% yoy to US$503/ton. Raw material
cost increased sequentially, presumably on the lag impact of increase in coking coal and
iron ore prices in 2QFY11. Note that contract coking coal price was US$209/ ton for
3QFY11 versus US$129/ton in 3QFY10.
JSW’s US subsidiary reported EBITDA of US$1.7 mn as against US$8.4 mn loss in the
previous quarter. Performance continued to be impacted by weak demand resulting in
low capacity utilization rates. At the net income level, US subsidiary reported loss of
US$12.9 mn.
Standalone net income of Rs3.8 bn declined 25.7% yoy and14.2% qoq. Net income on
yoy basis was impacted to the extent of Rs0.9 bn on account of higher forex gains in the
corresponding quarter of the previous year.
On a consolidated basis, JSW reported revenues of Rs59.6 bn (+24% yoy, +1% yoy),
EBITDA of Rs10.2 bn (-5.8% yoy, -0.6% qoq) and net income of Rs2.9bn (-32.1% yoy, -
21.8% qoq).
The company commenced mining operations in Chile in the month of November and
expects first shipment of iron ore to be in 1QFY12E. It expects to ship around 1 mn tons
of iron ore from Chile.
The company has guided for steel production of around 9mn tons in FY2012E, around
2.5 mn tons higher than its FY11E guidance as additional 3.2 mn expansion project at
Vijayanagar would come on stream at the end of FY2011E. Management guidance
appears to be optimistic. We model steel deliveries of 8.4 mn tons in FY2012E.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel (JSTL)
Metals & Mining
Another quarter of weak performance. JSW’s reported 3QFY11 EBITDA of Rs10.2
bn (-5.8% yoy) was 10.7% lower than our estimate with weaker-than-expected
realization the key reason for the shortfall. Net income of Rs2.9 bn declined 32.1% yoy,
falling short of our estimate. We like JSW’s execution and volume growth, the stock
also does not trade at demanding valuations. However, we maintain our REDUCE rating
based on a lack of near-term catalysts, the sharp rise in raw material prices, pressure on
industry conversion margins and little raw material integration. We lower FY2012E and
FY2013E EPS estimates by 8.1% and 22% and TP to Rs1000 (Rs 1,115 earlier).
EBITDA and net income lower than our estimate
JSW Steel reported consolidated 3QFY11 EBITDA of Rs10.2 bn (-0.6%qoq and -5.8% yoy) about
10.7% lower than our estimate of Rs11.4 bn. EBITDA/ ton was US$135, (-18.1% yoy, +6.6% qoq)
about 6.1% lower than our estimate. We attribute the entire deviation to lower-than-expected
steel realization (+16.8% qoq, +3.8% yoy). Net income declined 32.1% yoy to Rs2.9 bn. Steel
deliveries of 1.59 mn tons (+0.6% qoq and +11.8% yoy) was in line with our estimate; inventory
declined by 62K tons. JSW’s production continues to be well below rated capacity; management
attributed the same to lack of sinter capacity
Update on Ispat Steel acquisition
JSW Steel has acquired a 45.5% stake in Ispat for Rs21.6 bn, thanks to the preferential allotment
of shares by Ispat at Rs19.85. This can increase to 51.2% on full subscription to the mandatory
open offer. The acquisition price at an EV/EBITDA of 9.1X at management stated 12-month
profitability target is expensive. The acquisition will dilute JSW’s 2012E earnings by 7.2 to 10.2%,
in our view. JSW indicated logistics management, efficiency in raw material sourcing and better
absorption of fixed costs in case plant runs at rated capacity as key areas that will reduce COP.
Pressure on profitability likely to sustain; cut estimate and TP
While 4QFY11 will be markedly better quarter, medium-term profitability trends do not appear
encouraging. A spike in coking coal prices and firm iron ore price may pressure profitability. Our
profitability assumption for FY2012E and FY2013E reduces by 6.2 % and 12% to US$158/ton and
US$150/ ton. We cut our EPS estimates by 8.1% and 22% for FY2012E and FY2013E,
respectively. We will incorporate financials the of Ispat on completion of the open offer. We like
JSW’s execution; we even believe that the stock may not be expensive. However, a lack of nearterm
catalysts coupled with risks to profitability drive our REDUCE rating. We reduce our target
price to Rs1,000, from Rs1,115 earlier on the cut in our earnings estimate.
Update on raw material and capacity expansion projects
JSW expects iron ore shipments from Chile mines to start from 1QFY12, a delay of six
months from the original plan. The company commenced mining operations in Nov’ 10.
JSW expects to ship 1mn ton iron ore in FY2012E. Iron ore capacity will be bumped to 5
mn tons over a period of three years. JSW expects FOB cost of iron ore of US$60/ ton for
iron beneficiated to 62.5% FE. Note that the Chile iron ore mine will act as a hedge
against the iron ore price and will be sold in the markets. JSW owns 70% economic
interest in the Chilean iron ore mine.
JSW expects shipment of coking coal from US to start by April 2011. The company
expects shipments of ~80 kt / month at a cost of production of ~US$85/ ton FOB. In
addition, transportation costs would add another US$40/ ton. As a result, landed costs of
coking coal in India will likely be US$125/ ton.
The 3.2 mtpa expansion at Vijayanagar is on course and scheduled for completion by
end- FY2011E. This will increase Vijayanagar’s crude steel capacity to10 mtpa. Overall,
crude steel capacity will increase to 11mtpa.
JSW has proposed new cold rolling mill complex of 2.3 mtpa in two phases at Vijaynagar
works. Total investments in this project will be Rs40.3 bn, which will funded by D/E ratio
of 2:1. The targeted date of completion is 1QFY14 for Phase 1 and 1QFY15 for Phase II.
JSW has announced acquisition of Bellary Steel’s asset purchase. This includes 700 acres
of land, building and equipment pertaining to 0.5 mtpa steel plant close to JSW’s
Vijaynagar complex.
Gross debt unlikely to reduce over the next 2-3 years
JSW management indicated that gross debt is unlikely to change over the next two years.
Expansion plans, greenfield projects and acquisitions will keep debt at elevated levels. Note
that JSW raised Rs48 bn at Rs1,500/ share in 2QFY11. In addition, it raised a further Rs6 bn
in 3QFY11; Rs1.47 bn through preferential allotment of equity shares and Rs4.63 bn
through GDRs. The amount raised has partially gone in to reducing debt; the balance may
be used for expansion and acquisition. JSW reduced FY2011E capex guidance to Rs55 bn
versus Rs70 bn earlier and stepped up FY2012E capex guidance to Rs70 bn. Capex in
FY2012E will be directed towards (1) JSW Bengal project Rs40 bn; this target appears to be
optimistic; (2) Rs10 bn for a new cold rolling mill and (3) Rs20 bn on the current expansion
at Vijayanagar.
Key result highlights and commentary for FY2011E
3QFY11 steel deliveries grew 11.8% yoy to 1.59 mn tons which was flattish on a qoq
basis and in line with our estimate. JSW liquidated inventory to the extent of 62K tons
during the quarter.
Average realization increased 16.8% yoy and 3.8% qoq to Rs36,230/ton (US$806/ ton)
and was around 1.4% below our estimate. The company took another step toward
achieving a better product mix with a further decline in semis sales (-11%qoq, -72%yoy)
to 77K tons and an improvement in more value-added products. Rolled flat product grew
33% yoy to 1.25 mn tons and rolled long products grew 19% yoy to 0.28 mn tons. The
management indicated an EBITDA level benefit of Rs1.4 bn over 3QFY11 from change in
product mix.
Raw material cost increase by 21.4% qoq and 30.2% yoy to US$503/ton. Raw material
cost increased sequentially, presumably on the lag impact of increase in coking coal and
iron ore prices in 2QFY11. Note that contract coking coal price was US$209/ ton for
3QFY11 versus US$129/ton in 3QFY10.
JSW’s US subsidiary reported EBITDA of US$1.7 mn as against US$8.4 mn loss in the
previous quarter. Performance continued to be impacted by weak demand resulting in
low capacity utilization rates. At the net income level, US subsidiary reported loss of
US$12.9 mn.
Standalone net income of Rs3.8 bn declined 25.7% yoy and14.2% qoq. Net income on
yoy basis was impacted to the extent of Rs0.9 bn on account of higher forex gains in the
corresponding quarter of the previous year.
On a consolidated basis, JSW reported revenues of Rs59.6 bn (+24% yoy, +1% yoy),
EBITDA of Rs10.2 bn (-5.8% yoy, -0.6% qoq) and net income of Rs2.9bn (-32.1% yoy, -
21.8% qoq).
The company commenced mining operations in Chile in the month of November and
expects first shipment of iron ore to be in 1QFY12E. It expects to ship around 1 mn tons
of iron ore from Chile.
The company has guided for steel production of around 9mn tons in FY2012E, around
2.5 mn tons higher than its FY11E guidance as additional 3.2 mn expansion project at
Vijayanagar would come on stream at the end of FY2011E. Management guidance
appears to be optimistic. We model steel deliveries of 8.4 mn tons in FY2012E.
No comments:
Post a Comment